In the first two quarters of this year, India's GDP growth has been quite rapid, and the country's manufacturing industry has also seen significant development in recent years.

However, with the continuous interest rate hikes by the Federal Reserve, there has been a substantial retreat of funds from the Indian market, which could potentially trigger a debt crisis in India.

01 Debt Crisis

In response to the Federal Reserve's continuous interest rate hikes, the Indian economy appears to be more sensitive. According to data, among emerging economies, India has the highest debt ratio.

The International Monetary Fund also provided data showing that India's government debt has now reached 85% of its GDP.

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The continuous interest rate hikes by the Federal Reserve have forced the Reserve Bank of India to follow suit in order to prevent the depreciation of the Indian Rupee and to avoid capital outflows. However, this has also led to India having to pay increasingly higher interest on the debt it carries in the future.

Another set of data has further alarmed the Indian economic community.

Currently, India's total public debt has reached more than three times its foreign exchange reserves. As the pace of US dollar interest rate hikes increases, the cost of repaying debt is becoming higher, and the rate at which India's foreign exchange reserves are being depleted is also accelerating.

02 Sharp Decline in Foreign Exchange Reserves

Before the interest rate hike by the United States in September, India's foreign exchange reserves had already decreased by 15% compared to the previous year, leaving only $540 billion, and they have been continuously decreasing for eight consecutive weeks. The current level of foreign exchange reserves is the lowest in three years.Foreign exchange reserves have decreased by $100 billion compared to a year ago, likely to prevent the depreciation of the Indian exchange rate, the central bank has used foreign reserves to maintain the exchange rate.

As the US dollar index continues to rise, the depreciation of the Indian rupee so far has not been too significant, with a depreciation of 8% from the beginning of the year to now, which is less than the rise in the US dollar index and also less than the depreciation rate of most other Asian currencies.

Therefore, many analysts believe that this is due to the continuous consumption of foreign exchange reserves by the Reserve Bank of India, which has maintained the exchange rate.

Data from Standard Chartered Bank shows that in the past six months, India's foreign exchange reserves have decreased by about $17 billion per month, which is likely due to the Reserve Bank of India's continuous sales of US dollars to intervene in the exchange rate.

The Reserve Bank of India has not admitted this, but has not denied it either, instead stating that the central bank has a zero-tolerance attitude towards sharp fluctuations in the exchange rate. This seems to confirm from another perspective that the Reserve Bank of India will intervene in the exchange rate.

03, Capital outflow

Over the years, the Indian government has been advocating "Make in India," but in reality, GDP growth is driven by debt accumulation.

Once the United States continues to raise interest rates and withdraw liquidity, and funds flow back to the United States, the disaster for India begins. Now, the situation of capital outflow in India is becoming more and more obvious and severe.

Data from the Indian government shows that this year, foreign buyers have sold a total of 2.76 trillion Indian rupees worth of Indian stocks they held, which is equivalent to $34.5 billion at the current exchange rate of the Indian rupee.

This outflow amount is almost three times that during the 2008 financial crisis, when the global financial crisis erupted, and the outflow of foreign capital from the Indian stock market was only $12 billion.In this scenario, India is constantly devising ways to attract more foreign investment into the country. Recently, Foxconn from China's Taiwan has announced a collaboration with India to develop semiconductors.

However, at the same time, India has been continuously imposing various restrictions on mobile phone brands from Mainland China, with the intention of driving Chinese mobile phones out of India to support the development of local mobile phones.

This contradictory approach may lead to a faster outflow of other foreign investments.