India’s External Debt of USD 624.7 Billion Remains Stable: Finance Minister Sitharaman

India’s external debt of USD 624.7 billion at March-end 2023 with a debt-service ratio of 5.3 per cent is within the comfort zone and modest from a cross-country perspective, Finance Minister Nirmala Sitharaman has said.

In her foreword to ‘India’s External Debt: A Status Report 2022-23’ released earlier this month, Sitharaman said the ratio of external debt to GDP declined to 18.9 per cent at March-end 2022-23 from 20 per cent a year ago.

The long-term debt constituted 79.4 per cent of total external debt, while short-term debt, which is 20.6 per cent of the total external borrowing, is basically incurred to finance imports, enhancing the stability aspects of the total external debt, she said.

“From a cross-country perspective, India’s external debt position is better than most of the Low and Middle-Income Countries (LMICs) as measured by select vulnerability indicators, such as share of short-term debt in total external debt, external debt to GNI (Gross National Income), forex reserves to external debt and external debt to exports,” the minister noted.

The report said the debt service ratio during 2022-23 has increased marginally to 5.3 per cent from 5.2 per cent during the previous year, mainly due to a rise in debt service payments from USD 41.6 billion in 2021-22 to USD 49.2 billion in 2022-23.

The ‘debt service ratio’ is measured by the proportion of ‘gross debt service payments’ (both principal and interest) to ‘external current receipts,’ which indicates the extent of pre-emption of forex reserves for the purposes of repayment of principal and interest out of the stock of foreign debt.

The increase in gross external debt service payments during 2022-23 was due to the combined impact of an increase in debt service payments under commercial borrowings, including through multilateral and bilateral sources (16.7 per cent), external assistance (17.2 per cent) and an increase under NRI deposits (31.7 per cent), the report said.

India’s external debt at USD 624.7 billion as of March-end 2023 is marginally higher by 0.9 per cent or USD 5.6 billion over the previous year. Foreign exchange reserves covered 92.6 per cent of the external debt at March-end 2023, it added.

(This story has not been edited by Smartkhabrinews staff and is published from a syndicated news agency feed – PTI)

Key Highlights:

• India’s external debt stands at USD 624.7 billion with a debt-service ratio of 5.3 percent.
• The ratio of external debt to GDP declined to 18.9 percent at March-end 2022-23.
• Long-term debt constitutes 79.4 percent of total external debt.
• Short-term debt is 20.6 percent of total external borrowing, primarily used for financing imports.
• India’s external debt position is favorable compared to most Low and Middle-Income Countries.
• Debt service ratio increased marginally to 5.3 percent due to higher debt service payments.
• Foreign exchange reserves cover 92.6 percent of the external debt.

India’s Finance Minister Nirmala Sitharaman has released a report on India’s external debt status, providing insights into the country’s financial stability on the global stage. According to the report, India’s external debt at the end of March 2023 stood at USD 624.7 billion, accompanied by a debt-service ratio of 5.3 percent. This data is encouraging, indicating that India’s external debt remains within the comfort zone and is relatively modest compared to other countries.

Sitharaman highlights that the ratio of external debt to GDP has declined, further enhancing India’s financial resilience. Long-term debt makes up a significant portion of the total external debt, comprising 79.4 percent. In contrast, short-term debt accounts for 20.6 percent and is primarily used to finance imports, contributing to the overall stability of India’s external debt profile.

What sets India apart is its favorable position compared to many Low and Middle-Income Countries (LMICs) when assessed using various vulnerability indicators. These indicators include the share of short-term debt in total external debt, external debt to Gross National Income (GNI), forex reserves to external debt, and external debt to exports. India performs well on these measures, underscoring its sound financial management.

However, the report also notes a marginal increase in the debt service ratio during the 2022-23 period, rising from 5.2 percent to 5.3 percent. This uptick is primarily attributed to an increase in debt service payments, which surged from USD 41.6 billion in 2021-22 to USD 49.2 billion in 2022-23. The debt service ratio measures the proportion of gross debt service payments (comprising both principal and interest) to external current receipts. It indicates the extent to which forex reserves are allocated for repaying principal and interest from foreign debt.

The report further dissects the factors contributing to the increase in gross external debt service payments. It cites an uptick in debt service payments from various sources, including commercial borrowings through multilateral and bilateral channels (16.7 percent increase), external assistance (17.2 percent increase), and an uptick in Non-Resident Indian (NRI) deposits (31.7 percent increase).

While India’s external debt saw a marginal uptick of 0.9 percent, equivalent to USD 5.6 billion, compared to the previous year, it’s important to note that foreign exchange reserves covered a substantial 92.6 percent of the external debt at the end of March 2023. This provides a significant buffer, ensuring that India is well-prepared to meet its external financial obligations.