Table 4 of the India’s External Debt Report (As on March 2019)
This table contains key ratios, which are considered to be important external debt indicators. The range of data is from 1991.
- Ratio of External Debt to GDP = Total External Debt/Total Value of Good and Services produced in the country.
It gives an indication of the ability of the country to continue to service its external debt. If India borrows a higher portion of its external debt in foregin currency, then it would have to buy those foreign currencies at time of repayment. This creates an exchange risk for borrowers and may lead to pressure on the Rupee.
Former RBI Governor’s view on India’s plan to raise sovereign external debt in foreign currencies:
India’s GDP for 2018-2019 as per Provisional Estimates of National Income and Expenditures on GDP, 2018-19 ( At Current Prices) stood at Rs 19,010,164 crore.
At end of March 2019, India’s total external debt stood at $543 billion.
RBI’s reference rate as per FBIL for last trading day of March 2019 is 69.17
Thus, the ratio for March 2019 stood at 54369.17100/19010164 = 19.75%, rounded off to 19.7%
- Debt Service Ratio -It is the ratio of the debt service payments (interest and principal) to its export earnings
Lower the ratio, better is the ability of the country to “service”the debt
- Ratio of Foreign exchange reserves to total external debt-It is the ratio of forex reserves held by RBI to total external debt of the country.
Higher the ratio, better is the ability of central banks to supply dollars in the market when country services its external debt payments. This helps to prevent sharp volatility in the value of currency at times of such outflows.
At end of March 2019, India’s forex reserves stood at $412.871 billion. (1 billion = 1000 million)
For March 2019 P, it can be calculated as 412.871/543=76.03%, rounded off to 76%.
- Ratio of concessional debt to total debt- Concessional debt is the debt with original grant element less than 25%
It is at the historic lows in 2019 since 1991.
- Ratio of Short term debt to Foreign Exchange Reserves - It is the ratio of short term debt(with an original maturity of less than one year) to total forex reserves held by RBI.
For March 2019 P, it can be calculated as 108.4/412.871=26.25%, rounded off to 26.3%
- Ratio of Short term debt (Original Maturity) to Total Debt - It is the ratio of short term debt(with an original maturity of less than one year) to total external debt of the country.
For March 2019 P, it can be calculated as 108.4/543=19.96, rounded off to 20%
Short-term debt-The short-term debt are debt issued with an original maturity of up to 1 year. They also include bank deposits like NRI deposits with a term of less than one year. India’s short term liabilities to foreign investors stood at US$104.3 billion. Thus, the ratio of short-term debt (original maturity) to total forex reserves stood at 26.1% .
The long-term debt are debt issued with an original maturity of more than 1 year. It stood at US$ 406.1 billion. Thus, the ratio of long-term debt to total forex reserves stood at 73.9.1%.
Thus, 20.4% of our external debt has to be paid within a year and the rest of 79.6 % has been issued with an original maturity of more than 1 year.
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) is 43.8% of total external debt and 55.8% of foreign exchange reserves.
Hence, the country has to repay 43.8% of its external debt within a year if they are not rolled over by investors.
India’s external liabilities was mostly in USD. Debt in USD made up the biggest component of external debt with 49.7% share. Debt that was held by foreign investors in INR was 36.1%, SDR 5.3%, yen 4.3% and euro 3.2%.
Insert Table: Borrower-wise classification of debt. The table classifies India’s external debt based on the issuer of it.
Sovereign debt is the debt that is issued by the Union Government of India. It includes money borrowed for assistance, defence debt, investment made by foreigners -FPIs, foreign central banks, international institutions and IMF - in government securities/treasury bills.
At the end of Sept 2018, 102.7 bn was owed by the government to foreign investors in terms of USD. This is 20.12% of total external debt and 25.64$ of total foreign exchange reserves.
The Non-Government debt stood 407.7 billion in terms of USD. This is 79.88% of total external debt and 74.36% of total forex reserves.
e foreign exchange reserves.