India external debt witnesses rise due to higher commercial borrowings and NRI deposits

Newsroom24x7 Desk

debtNew Delhi, Jan. 9: Four months after the formation of the Modi Government at the Centre, India’s total external debt stock (at end-September 2014) was placed at US$ 455.9 billion, recording an increase of US$ 13.7 billion over its level at end-March 2014.

According to data released for the quarter ending September 30, 2014 by the Union Ministry of Finance, during the third quarter, long-term external debt increased by 4.7 per cent to US$ 369.5 billion, while short-term debt registered a decline of 3.2 per cent to US$ 86.4 billion. Thus, the maturity profile of India’s external debt continues to be dominated by long-term loans.

The rise in long-term external debt was primarily due to higher commercial borrowings and NRI deposits. At end-September 2014,commercial borrowings stood at US$ 161.4 billion, reflecting an increase of 9.0 per cent, while NRI deposits at US$ 108.7 billion rose by 4.7 per cent over the end-March 2014 level. Commercial borrowings and NRI deposits together accounted for 59.2 per cent of India’s total external debt (long-term and short-term) at end-September 2014 vis-à-vis 56.9 per cent at end-March 2014.

India’s external debt indicates dominance of long-term borrowings. At end-September 2014, long-term external debt accounted for 81.1 per cent of the country’s total external debt. Long-term debt at end-September 2014 was placed at US$ 369.5 billion, showing an increase of US$ 16.5 billion (4.7 per cent) over the level at end-March 2014.

Short-term debt at end-September 2014 witnessed decline over its level at end-March largely on account of decline in FIIs investment in Government treasury bills and other instruments. Short-term debt declined by 3.2 per cent to US$ 86.4 billion at end-September 2014 over the end-March 2014 level.

Even considering the fact that Valuation gain (appreciation of US dollar against the Indian rupee and other most major currencies) was placed at US$ 6.7 billion and after excluding the valuation effect, the increase in debt was higher by US$ 20.4 billion at end-September 2014 over the end-March 2014 level.

It is noteworthy that the shares of Government (Sovereign) debt in the total external debt was 19.4 per cent as against non-Government debt which was 80.6 per cent at end-September 2014. During the period end-March 2009 to end-March 2014, the ratio of Government debt to GDP exhibited a decline and remained in the range of 4.3 to 5.1 per cent.

The share of US dollar denominated debt continued to be the highest in external debt stock at 60.1 per cent at end-September 2014, followed by the Indian rupee (24.2 per cent), SDR (6.5 per cent), Japanese yen (4.5 per cent), and euro (3.0 per cent).

Significantly as a result of the handling of finances by the previous Manmohan Singh led Government India’s foreign exchange reserves position was such that it could provide a cover of 68.9 per cent to the total external debt stock at end-September 2014. At end March 2014,foreign exchange reserves provided a cover of 68.8 per cent.

This is further reflected by Cross-country comparison of external debt based on the World Bank’s annual publication titled ‘International Debt Statistics 2015’, which contains the external debt data for the year 2013 indicates that India continues to be among the less vulnerable countries. India’s key debt indicators compare well with other indebted developing countries.

As per the standard practice, India’s external debt data are disseminated on a quarterly basis with a lag of one quarter. Statistics for the first two quarters of the calendar year (ending March and June) are compiled and released by the Reserve Bank of India, while the data for the last two quarters (ending September and December) are compiled and released by the Ministry of Finance.