India's External Debt

The external debt figures for quarters ending in March and June are released by RBI in the months of April and July respectively. Thus, there is a lag of one month

:rbi: India’s External Debt as the end of September 2018, (released on Dec 31, 2018)

Those for quarters ending in August and September are released by the Ministry of Finance, Government of India.

External debt is the money owed to foreigners. Hence, they are monitored by central banks to understand how much foreign exchange the country would require in the event of redemption by foreign creditors and the subsequent impact on the value of the domestic currency.

At end of March 2019, India’s total external debt was US$510.4 billion.

At end-March 2019, India’s external debt in terms of USD witnessed an increase of 2.6 per cent over its level at end-March 2018. This was due to primarily on account of an increase in short-term debt, external commercial borrowings and non-resident Indian (NRI) deposits.

However, the value of external debt in USD was partially offset by when debt in rupees was converted into US$ at higher value of US$ with respect to rupee. This decrease in value of debt in terms of US$ is a valuation gain.

External debt to GDP is one of the various ratios used as indicators to measure sustainability of the debt. External debt to GDP measures the ratio between a country’s total external debt and its gross domestic product (GDP) .A low ratio indicates an economy that produces and sells goods and services sufficient enough for government and corporates to pay back the foreign debtors.

The external debt to GDP ratio stood at 19.7 per cent at end-March 2019. It stood at 20.1 per cent at end-March 2018.

Major highlights pertaining to India’s external debt at end-March 2019 are presented below:

  1. At end-March 2019, India’s external debt was placed at US$ 543.0 billion. The year-on-year (when compared to March 2018) increase is of US$ 13.7 billion

  2. Valuation gain due to the appreciation of the US dollar vis-à-vis Indian rupee and other major currencies was placed at US$ 16.7 billion. India’s external debt is owed in US$, Indian rupee, Japanese yen, SDR and Euro. If the debt is evaluated at the same value of US$ vs above currencies as for the March-2018 report, the increase in external debt would have been US$ 30.4 billion instead of US$ 13.7 billion at end-March 2019 over end-March 2018.

  3. Commercial borrowings remained the largest component of external debt, with a share of 38.0 per cent, followed by NRI deposits (24.0 per cent) and short-term trade credit (18.9 percent).

All the transactions on account of External Commercial Borrowings (ECB) and Trade Credit are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 (FEMA).

Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers
Reserve Bank of India - Master Directions

  1. Long-term debt was placed at US$ 434.6 billion, recording an increase of US$ 7.5 billion over its level at end-March 2018. Long term debt are debt issued with original maturity of more than one year

  2. The share of long-term debt (as per original maturity) to total external debt at end-March 2019 stood at 80%. Thus, for every $1 owed to foreign creditors, 80 cents is to be repaid only after one year from the issue of the debt. Share of long-term stood at 80.7% to total external debt at end-March 2018

  3. The share of short-term debt (with an original maturity of up to one year) in total external debt increased to 20% at end-March 2019 from 19.3% at end-March 2018. They also include bank deposits like NRI deposits with a term of less than one year.

  4. Ratio of short-term debt (original maturity) to foreign exchange reserves increased to 26.3 per cent at end-March 2019 vs 24.1% at end-March 2018. As short term debt are immediate liabilities, RBI measures the adequacy of foreign exchange reserves to meet them with this ratio.

  5. Short-term debt on a residual maturity basis (debt owed to foreign investors which included long-term debt issued with maturity more than a year but falling due within the next 12 months and short term as per original debt) constituted 43.4% of total external debt at end-March 2019 (42.0% at end-March 2018)

It stood at 57.0% of foreign exchange reserves (52.3% at end-March 2018).

Hence, the country has to repay 43.8% of its external debt within a year if they are not rolled over by investors.

Short-term debt measured on a residual maturity basis provides a picture of the total forex outflow related to debt payments in the next one year and accordingly becomes useful from risk management perspective for central bank. Along with short-term debt with original maturity, it tells about the all the repayments due under the long-term debt by original maturity during the next one year.

  1. India’s external liabilities are mostly in US$. The share of US dollar denominated debt was at 50.5%, followed by the Indian rupee (35.7 per cent), Japanese yen (5.0 per cent), SDR (4.9 per cent) and euro (3.0 per cent).

  2. The outstanding debt of government decreased, while that of non-government sector increased

  3. Debt service declined to 6.4 percent of current receipts at end-March 2019 as compared with 7.5 per cent at end-March 2018, reflecting lower repayments of commercial borrowings (Table 4).