India, the world’s most populous nation, has long stood at the crossroads of opportunity and vulnerability, a paradox shaped by its historical economic dependencies, especially its considerable reliance on World Bank debt and development funds.

Through decades of external borrowing, fiscal crises and ambitious development programmes, India has emerged as a case study of both regional vulnerability and the complex promise of sustainable growth. Today this paradox is further complicated by the urgent need for a green transition as climate challenges intensify across its diverse landscape. India’s relationship with the World Bank dates back to 1949, just two years after independence, when it secured its first loan for the development of the Indian Railways.

Over the subsequent decades, India’s external borrowing became a central part of its economic toolkit, particularly during periods of fiscal turbulence and reform. India has consistently featured among the world’s largest recipients of development loans in absolute terms.

By the end of 2023, the nation’s general government external debt stood at $109bn, with public sector debt over $43bn, reflecting both historical accumulation and ongoing needs. This debt, while significant, must be seen in the context of India’s economic scale. Its external debt stock has frequently ranked just behind global giants but relative to its gross national income the burden remains moderate compared to many highly indebted peers.

Notably, India’s foreign exchange reserves have historically provided a robust cushion, often covering more than two thirds of the external debt. India’s reliance on external development financing reflects regional vulnerabilities and systemic shocks, be it global oil crises, sanctions or currency volatility, that periodically threaten economic stability across South Asia.

External shocks tend to have pronounced effects in large, populous countries like India, with the transmission of economic downturns from global markets having disproportionately large impacts on domestic growth. The 1991 balance of payments crisis is etched in India’s national memory, a moment when India’s foreign exchange reserves plummeted, forcing a pledge of gold and sweeping overhauls in economic policy.

Loans and structural adjustment programmes played a critical role in helping India stabilise and liberalise its economy, unlocking new patterns of growth and export orientation. Since then, similar crises have exposed continuing vulnerabilities, especially in areas such as rural employment, food security and the sustainability of social welfare spending.

World Bank funding in India has spanned an enormous spectrum, from massive infrastructure works to targeted rural development and social sector programmes. Funding priorities have evolved from traditional projects such as roads, dams and irrigation to contemporary challenges such as health, education and poverty reduction. Flagship programmes include rural roads expansion, environmental rehabilitation projects and nationwide education schemes that have reportedly lifted India’s elementary education coverage to above 95% by the early 2010s.

Each programme reflects the double bind of development, with significant gains in access and infrastructure but persistent gaps in regional reach, quality and effectiveness, especially in the country’s poorest states. More recently the development challenge is converging with climate action.

India, with its massive energy needs and growing emissions, has become a linchpin in the world’s response to climate change. The country has announced a low carbon development strategy, and multi billion dollar schemes are underway for green hydrogen, renewable energy and the creation of a national carbon credit market. India’s ambitions are formidable.

The aim is to produce hundreds of thousands of metric tonnes of green hydrogen annually and rapidly expand solar module manufacturing capacity. The long term goal is to build the infrastructure base necessary to deliver on Net Zero 2070 climate targets. Yet the green transition is fraught with social and economic complexities. Only a small fraction of India’s jobs currently qualify as green, while nearly as many are in carbon intensive sectors. Bridging this gap is crucial for a just transition, with climate policies required to create new training pathways and cushion communities at risk from the decline of traditional industries.

Achieving these goals demands an extraordinary scale of finance. Estimates suggest that India will need trillions of dollars by 2070 to meet its green transition targets. These funds far outstrip public budgets and require the aggressive mobilisation of private capital. In this context lending and guarantees from international bodies serve not just as direct investments but as anchor points for broader capital flows, risk sharing and technology transfer. The approach has shifted towards catalytic effects, stimulating private investment, supporting innovative technologies and shaping new markets in sectors such as renewable energy and green hydrogen.

The development portfolio now includes initiatives to integrate renewables into the grid, electrify freight corridors and scale up rooftop solar in both urban and rural areas. While progress has been notable, there are still challenges with the effectiveness and sustainability of funded projects. Issues of co-ordination among central and state agencies, and the need to mainstream gender, environmental and participation safeguards, continue to surface.

Equitable outcomes across states, social classes and rural urban divides remain the touchstone by which large scale development finance is judged. Furthermore, as the share of private capital and market based finance rises, questions of debt sustainability, risk concentration and transparency remain pressing.

The experience of other emerging economies serves as a cautionary tale, where overreliance on external borrowing led to economic distress and undermined local decision making. India’s historical reliance on international funding, its periodic exposure to global economic shocks and its ambitious development and climate programmes together constitute a complex story of progress, risk and resilience.

Today, as the world’s attention turns to the green transition, the stakes for India have never been higher. What is clear is that India’s journey is far from over. The balance between mobilising external finance, delivering equitable development and ensuring environmental sustainability in the face of climate change will continue to define the Indian experience and, by extension, the future of the world’s most populous country.