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India's external debt rises to $221 billion
India's external debt, both government and non government, rose sharply by $ 50 billion for the financial year ended march 31, 2008 to touch $221.21 billion. This is the highest year on year increase in 18 years.
A fall in the value of the dollar against the rupee, increase in oil imports and larger borrowings from international capital markets by Indian corporates because of the high interest rates prevailing in India were cited as the main reasons for the sharp increase in external debt by a status report on India's External Debt released by the finance ministry stated.
Short term debt rose by 68 per cent to touch $44.31 billion mainly due to larger trade credits owing to higher imports during the year, particularly oil imports. Rise in short-term debt, particularly due to increasing oil imports, and dollar depreciation during the year contributed to the surge in the external debt. Weakening of dollar against major currencies contributed almost 20 per cent of the total amount India owes to the world.
External Commercial Borrowings, funds raised by India Inc abroad, rose by 49 per cent to touch $62.02 billion as on March 31, 2008 from $41.66 billion a year ago. External Commercial Borrowings, contributed 28 per cent of the total debt, short-term debt constituted 20 per cent of the total debt. "The increase in ECBs can be attributed to the report said.
Besides ECBs and short-term debts, other component of India's external debt include NRI deposits which contributed 19.8 per cent, multilateral funding (17.8 per cent), bilateral funding (8.9), trade credits (4.6) and rupee debt (0.9).
Fortunately, all major external debt indicators are still in the comfortable zone. As per statistics available with the Reserve Bank of India (RBI), the country's foreign exchange reserves - including currencies and gold - stood at $297.28 billion on Aug 22. Forex reserve cover of external debt continued to be at high level, up from 117.4 per cent during 2006-07 to 140 per cent during 2007-08. Other indicators, such as the ratio of external debt to GDP, which measures the burden of external debt, increased from 17.8 per cent during 2006-07 to 18.8 per cent during 2007-08; the ratio of short-term debt to forex reserves rose from 13.2 per cent to 14.3 per cent and the ratio of short-term debt to total external debt too rose from 15.5 per cent to 20 per cent over the same period.
A cross-country comparison based on the data given in the World Bank's Global Development Finance, 2008 showed that India's position among the top 10 debtor countries of the developing world was fifth in 2006.
In terms of ratio of external debt to gross national income, India's position was second after China. Similarly, its debt service ratio was the second best after that of China.
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