Net claims of non-residents on India went up in Q4-2015: RBI
Mumbai: India’s International Investment Position (IIP) for the quarter ending March 2015 shows that liabilities of residents to non-residents went up as the net claims of non-residents on India (as reflected by the net IIP) increased by US$ 9.3 billion over the previous quarter to US$ 363.0 billion.
This change in the net position reflected a US$ 36.6 billion increase in the value of foreign-owned assets in India vis-à-vis a US$ 27.3 billion increase in the value of Indian Residents’ financial assets abroad.
Indian residents’ financial assets abroad stood at US$ 517.8 billion as at end-March 2015 exhibiting an increase of US$ 27.3 billion over previous quarter mainly due to increase of US$ 20.9 billion in Reserve assets and US$ 7.9 billion in currency & deposits, even as trade credit assets declined by US$ 3.6 billion during the quarter.
Foreign-owned assets in India increased by US$ 36.6 billion over the previous quarter to US$ 880.8 billion mainly due to the increase in direct and portfolio investments in India by US$ 12.6 billion and US$ 16.9 billion, respectively. Among other investment liabilities, currency & deposits increased by US$ 5.1 billion.
India’s External Debt
India’s external debt at end-March 2015 also showed an increase of US$ 29.5 billion (6.6 per cent) over end-March 2014, due to the rise in commercial borrowings and NRI deposits. Further, the increase in the magnitude of external debt was partly offset by the valuation gains resulting from the appreciation of the US dollar vis-a-vis Indian rupee and other major currencies. The external debt to GDP ratio stood at 23.8 per cent at end-March 2015, recording a marginal increase over its level of 23.6 per cent at end-March 2014.
Effects of Exchange Rate movement
Variation in exchange rate of rupee vis-a-vis other currencies affected change in liabilities, when valued in US$ terms. Equity liabilities increased by US$ 19.1 billion, from US$ 382.4 billion in December 2014 to US$ 401.5 billion in March 2015, partly due to the revaluation of the past liabilities on account of rupee appreciation during the quarter, while net inflow was US $ 14.7 billion during the period.
The ratio of India’s international financial assets to international financial liabilities stood at 58.8 per cent in March 2015 (58.1 per cent in December 2014).
International financial assets abroad increased by US$ 34.1 billion during the financial year 2014-15 (Table 1). These included increase of US$ 1.8 billion in direct investment abroad and US$ 37.4 billion in Reserve Assets, even as trade credit declined by US$ 6.0 billion.
International financial liabilities increased by US$ 60.3 billion on a year-on-year basis. Of these, direct investment in India increased by US$ 22.0 billion whereas portfolio investment in India increased by US$ 30.6 billion. Among other investments, currency & deposits increased by US$ 11.3 billion during the year.
As a result of the above changes in external assets and liabilities, net claims of non-residents on India increased by US$ 26.2 billion during the financial year 2014-15.
II. Ratios of International Financial Assets and Liabilities to Gross Domestic Product (GDP)
The ratio of total international financial assets to GDP (at current prices) increased to 25.8 per cent as at end-March 2015 from 25.6 per cent a year ago (Table 2). Reserve Assets to GDP ratio increased to 17.1 per cent as at end-March 2015 from 16.1 per cent as at end-March 2014.
The ratio of total international financial liabilities to GDP rose to 44.0 per cent as at end-March 2015 from 43.5 per cent a year ago. Among the international financial liabilities, the ratio of Direct investment and Portfolio investment to GDP stood at 13.2 per cent and 11.4 per cent, respectively, as at end-March 2015.
The ratio of net IIP to GDP was (-) 18.1 per cent at end-March 2015.
Composition of External Financial Assets and Liabilities
Reserve Assets continued to have the dominant share (66.0 per cent) in India’s international financial assets in March 2015, followed by direct investment abroad (25.2 per cent).
Direct Investment (30.0 per cent), portfolio investment (25.9 per cent), loans (20.3 per cent), and currency and deposits (13.1 per cent) were the major constituents of the country’s financial liabilities.
Debt Liabilities vis-à-vis Non-Debt Liabilities
The share of non-debt liabilities increased marginally to 45.6 per cent as at end- March 2015 from 45.3 percent at end- December 2014.
International Investment Position (IIP) is a statistical statement that shows, at a point in time, the value and the composition of (a) financial assets of residents of an economy that are claims on non-residents, and gold bullion held as reserve assets; and (b) liabilities of residents of an economy to non-residents. The difference between an economy’s external financial assets and liabilities is its net IIP, which may be positive or negative. Such balance sheet analysis of international accounts is an important input for understanding external sustainability and vulnerability, and is also useful in analysing the economic structure.
Key points relating to India’s external debt as at end-March 2015 are set out below:
- India’s external debt at end-March 2015 was placed at US$ 475.8 billion recording an increase of US$ 29.5 billion (6.6 per cent) over its level at end-March 2014.
- Excluding the valuation gains due to appreciation of US dollar against the Indian rupee and other major currencies, the increase in external debt by end-March 2015 over its end-March 2014 level would have been higher at US$ 45.7 billion.
- The increase in external debt during 2014-15 was on account of commercial borrowings and non-resident deposits.
- The US dollar denominated debt continued to be the largest component of India’s external debt with a share of 58.3 per cent at end-March 2015, followed by Indian rupee (27.9 per cent), SDR (5.8 per cent), Japanese Yen (4.0 per cent) and Euro (2.4 per cent).
- Short-term debt by original maturity at US$ 84.7 billion accounted for 17.8 per cent of the total external debt as at end-March 2015 as compared with 20.5 per cent at end-March 2014. Similarly, on residual maturity basis, the ratio of short-term debt to total debt worked out to 38.9 per cent as compared with 39.6 per cent a year ago.
- The ratio of short-term debt (original maturity) to foreign exchange reserves declined to 24.8 per cent as at end-March 2015 (30.1 per cent a year ago). Similarly, on residual maturity basis, the ratio of short-term debt to foreign exchange reserves worked out to 54.2 per cent at end-March 2015 (57.4 per cent at end-March 2014).
- Across borrower categories, the outstanding debt of both Government and non-Government sectors increased and their shares in total external debt were 18.9 per cent and 81.1 per cent, respectively, at end-March 2015.
- Higher debt service payments during 2014-15 relative to the preceding year, were largely on account of higher repayments of ECBs during the year