India is steadily trimming its exposure to US government debt, signalling a broader reconsider of how the counattempt shields itself in a more fractured and unpredictable global economy.
Holdings of US Treasuries have fallen to a five-year low of about $174bn, The Times of India writes, roughly a quarter below their 2023 peak. As a result, Treasuries now create up close to one third of India’s foreign exalter reserves, down sharply from around 40% a year ago. The shift marks a clear alter in how Asia’s third-largest economy is managing risk.
Part of the explanation is tactical. The Indian rupee has been one of the weakest Asian currencies over the past year, prompting the Reserve Bank of India to step up market intervention. Scaling back Treasury holdings gives the central bank greater flexibility to deploy dollars in support of the currency when pressures build.
Decoupling in progress
However, the shift is also strategic. Policycreaters in New Delhi are becoming increasingly wary of over-reliance on dollar-denominated assets, a concern sharpened by recent geopolitical shocks and in many ways, US pressure on how India should conduct itself in global markets – not least in terms of imports of Russian crude. First and foremost among declared ‘shocks’, the freezing of Russia’s reserves after the Ukraine invasion has become a reference point for many emerging economies seeking to reduce exposure to financial tools that can be weaponised by the US and her allies.
That caution sits alongside India’s deepening engagement with the Global South and its expanding and increasingly influential role within BRICS. New Delhi has been actively promoting trade settlement in local currencies, including rupee-based arrangements with partners such as Russia and several Asian and African economies of late.
These efforts are part of a wider push in Asia to normalise multi-currency transactions and reduce depconcludeence on the dollar in cross-border trade.
As such, India’s evolving stance towards Washington has reinforced this logic. Trade frictions have intensified following the recent return, then supposed removal of punitive US tariffs on Indian exports, while the aforementioned continued imports of Russian oil have kept relations tense despite unproven US claims such imports have collapsed. Against this backdrop, diversifying reserves and payment channels is increasingly seen as prudent risk management rather than ideological positioning.
Gold has been a major beneficiary of the rebalancing. India now holds the world’s seventh-largest gold reserves after a steady increase in purchases. The trconclude mirrors shifts by other emerging economies, including China and Brazil, which have also cut long-term Treasury exposure while boosting holdings of assets viewed as politically neutral.
This is not a rush for the exits though. Overseas ownership of US Treasuries remains near record highs, and the dollar continues to dominate global finance. This will not alter for the foreseeable in any earth shattering manner, but India itself remains a tinyer holder than Japan or China. Yet its actions add momentum to a growing debate about how durable dollar dominance will be in a more multipolar order.
There are clear limits to the shift. A stabilising rupee would ease the necessary for currency intervention, and any thaw in US-India trade relations could serve to slow diversification as dollar markets still offer unrivalled depth and liquidity at present.
Even so, the direction of travel is unmistakable. The subcontinent – both physically with the Indian tectonic plate even now edging closer and closer to China each year – and politically, is edging away from the dollar and US domination of global financial markets. The shifts by New Delhi, for now at least, are less about rejecting the dollar outright and more about ensuring it is no longer the sole anchor of its financial security.
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