Indian companies increased external commercial borrowings to $6.08 billion in June 2026, a 74% jump from last year. Faced with tight domestic liquidity, firms are turning to overseas markets to fund operations. This shift, while easing immediate cash flow pressure, raises concerns about long-term currency risk and the reliance on foreign debt for daily working capital needs.
Indian companies have sharply increased their reliance on external commercial borrowings, with total inflows reaching $6.08 billion in June 2026. This marks a 74.4% increase compared to the $3.48 billion recorded in the same month last year. The surge in borrowing is primarily driven by a combination of tight domestic liquidity and favorable interest rate differences compared to international markets, further supported by the February 2026 amendments to the Foreign Exchange Management Act.
Public sector undertakings have been at the forefront of this trend. The Reserve Bank of India’s introduction of a special USD-INR swap mechanism on June 8, 2026, has been a key driver, encouraging companies to tap into foreign funding. Major entities like the Power Grid Corporation of India and HUDCO have actively utilized these facilities. In fact, shareholders of Power Grid Corporation of India recently approved an increase in the company’s borrowing limit to ₹2.2 lakh crore at its annual general meeting on August 20, 2026, reflecting the scale of these financial maneuvers.
A significant shift in how these funds are being used has drawn attention from analysts. In June 2026, 76 companies secured overseas funding specifically for working capital and general corporate purposes, compared to 49 firms during the same period a year earlier. This strategy suggests that companies are prioritizing short-term cash flow management over long-term capital expenditure. While this helps companies navigate domestic liquidity constraints, it also introduces long-term risks. Investors often view the use of long-term foreign debt to fund day-to-day operational expenses as a sign of potential structural weakness in a company’s cash flow generation.
For investors, this trend brings specific risks that require careful monitoring. Borrowing in foreign currency introduces currency exchange rate risk. If the rupee depreciates against the dollar, the cost of servicing this debt increases, which can pressure profit margins. Furthermore, relying on external debt for working capital rather than asset creation means the company is not necessarily building new income-generating capacity, which is essential for long-term growth. As the Reserve Bank of India manages the resulting increase in dollar obligations created by these swap facilities, companies with high levels of external debt may face volatility in their financial performance depending on global rate cycles and currency fluctuations. Investors should look at management commentary in upcoming quarterly results to understand how much of this borrowed capital is being allocated to productive assets versus routine operational costs.