India's External Debt
AT end-March 2012, India's external debt stock stood at USD 345.8 billion, increasing by USD 39.9 billion (13.0 per cent) over the end-March 2011 level of USD 305.9 billion. The external debt GDP ratio was 20.0 per cent at end-March 2012 vis-a-vis 17.8 per cent at end-March 2011. The rise could be attributed mainly to increase in commercial borrowings, short-term debt, and non-resident Indian deposits.
The composition of India's external debt is undergoing a change with the share of multilateral and bilateral debt in total external debt rapidly diminishing over the years, while that of external commercial borrowings and NRI deposits rising. At end-March 2012, the share of commercial borrowings in total external debt stock stood at 30.2 per cent, followed by short-term debt (22.6 per cent), NRI deposits (16.9 per cent) and multilateral debt (14.6 per cent). Rising share of commercial borrowing over the years is an indication of maturing market economy and the increasing role that corporate sector is playing in sustaining the growth of the economy.
The long-term debt at USD 267.6 billion at end-March 2012 reflected an increase of 11.1 per cent, while the short-term debt at USD 78.2 billion increased by 20.3 per cent over the level of end-March 2011. The long-term debt accounted for 77.4 per cent of total external debt at end-March 2012.
Government's external indebtedness has assumed importance in the backdrop of the on-going sovereign debt crisis in the euro zone and its implications for overall macroeconomic management. In Indian context, sovereign (Government) external debt however constitutes only around 11 per cent of the total public debt, the remaining being from domestic sources. At end-March 2012, Government external debt stood at USD 81.9 billion, vis-a-vis USD 78.1 billion at end-March 2011.
The currency composition of India's external debt shows continued dominance of US dollar, accounting for 55.0 per cent of total external debt at end-March 2012. This is followed by the Indian rupee (21.4 per cent), Japanese yen (9.1 per cent) and SDR (8.8 per cent). The rupee denominated debt comprises outstanding state credits extended to India by the erstwhile Union of Soviet Socialist Republic (USSR), rupee denominated NRI deposits, Foreign Institutional Investor's (FII) investments in Government Treasury Bills/dated securities and corporate debt securities.
The valuation effect reflecting the appreciation of US dollar in the international market had the effect of reducing the increase in India's external debt. Excluding the valuation effect, the stock of external debt at end-March 2012 would have increased by USD 51.8 billion over the level at end-March 2011.
Though India's external debt has remained within manageable limits, there are signs of rising external debt burden, especially in view of increasing share of short-term and commercial debt in total external debt, widening current account deficit, implications of falling value of rupee on the corporate balance sheets and fluid global economic situation.
Source: INDIA'S EXTERNAL DEBT - A Status Report - 2011-12, issued by Ministry of Finance