The external debts are posing a hurdle for the Indian economy as stated by the Economic Survey 2016-17 which directly affects the balance of payments (BOP) situation for the economy. India’s external debts are largely constituted of long-term external borrowings having a higher rate of interest on. A lot of interest payments against such external borrowings leads to create an unfavourable situation for the Indian economy to finance its current account deficits.
An IAS aspirant should critically analyse the strength and weak areas of the Indian economy. Here, for the convenience of IAS aspirants, we have provided an analysis of external debts of India as given in the recent Economic Survey 2016-17. The given analysis is important for UPSC IAS Mains Exam.
External Debt of India
- At the end of the September 2016, India’s external debt stock stood at US$ 484.3 billion, registering a decline of US$ 0.8 billion over the level at the end of March 2016, which was mainly due to a reduction in commercial borrowings and the short-term external debt.
- As we compare the total external debt on a sequential basis then at the end of the September 2016 it is increased by US$ 4.8 billion from the end of the June 2016 level.
- The shares of Government’s sovereign debt and non-Government debt in the total external debt were 20.1 per cent and 79.9 per cent respectively at the end of the September 2016.
- At the end of the September 206, the US dollar denominated debt accounted for 55.6 per cent of India’s total external debt followed by Indian rupee (30.1 per cent), SDR (5.8 per cent), Japanese Yen (4.8 per cent) Pound Sterling (0.7 per cent), Euro (2.4 per cent) and others (0.6 per cent).
- The maturity pattern of India’s external debt indicates a dominance of long-term borrowings while the long-term external debt accounted for 83.2 per cent of India’s total external debt at the end of the September 2016.
- On a residual maturity basis, the short-term debt constituted 42.0 per cent of total external debt at the end of the September 2016 and 54.7 per cent of total foreign exchange reserves.
- The ratio of concessional debt to total external debt was 9.4 per cent at end-September 2016, same as at the end of the June 2016 and a marginal increase from the 9.0 per cent at the end of the March 2016.
- Most of the key external debt indicators showed an improvement in September 2016 (see Table) vis-a-vis March 2016.
- The contribution of short-term debt in total external debt declined to 16.8 per cent at the end of the September 2016 and foreign exchange reserves provided a cover of 76.8 per cent to the total external debt stock while other indicators also generally showed an improvement.
- The cross-country analysis of external debt based on the World Bank’s annual publication titled- ‘International Debt Statistics 2017’, states the external debt data for the year 2015 which indicates that India continues to be among the less vulnerable countries in the world.
- India’s key debt indicators compare well with other indebted developing countries.