India’s external debt increases to 620 billion $: Understanding its implications on our economy

More than 40 percent or $267 billion worth of external debt is due for repayment in the next nine months

 

 

 

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India's debt burden as increased by USD 47.1 billion to USD 620.7 billion in the financial year ended March 2022, in what can be seen as a worrying sign for country's economy. According to the latest figures released by the Reserve Bank of India (RBI), outstanding debt of both government and non-government sectors increased during 2021-22. According to the central bank, long-term debt (with original maturity of above one year) was placed at USD 499.1 billion, recording an increase of USD 26.5 billion over its level at the end of March 2021. During the same period, the share of short-term debt in total external debt increased to 19.6 per cent from 17.6 per cent.

A large pile of external debt is coming up for redemption this year. More than 40 percent or $267 billion worth of external debt is due for repayment in the next nine months. This is equivalent to 44 percent of India's foreign exchange reserves. US dollar-denominated debt remained the largest component of India's external debt, with a share of 53.2 per cent followed by debt denominated in the Indian rupee (31.2 per cent), SDR (6.6 per cent), yen (5.4 per cent), and the euro (2.9 per cent).

Loans remained the largest component of external debt, with a share of 33.0 per cent, followed by currency and deposits (22.7 per cent), trade credit and advances (19.0 per cent) and debt securities (17.1 per cent). The share of outstanding debt of non-financial corporations in total external debt was the highest at 40.3%, followed by deposit-taking corporations at 25.6% (except the central bank), general government (21.1%) and other financial corporations (8.6%).

However, the external debt to GDP ratio declined to 19.9 per cent at the end of March from 21.2 per cent at the end of March 2021.

Adding to this, our foreign reserves too has been falling at a rapid rate. The reserves fell to $593.3 billion as of June 2022 from a peak of $642.5 billion on September 2021.

This has come at the wrong time as the government is battling to keep the falling Indian rupee in check. Higher depreciation in the value of the rupee creates more pressure on our economy as the country imports nearly 85% of its oil needs. A falling rupee would also cause the government to spend more (through subsidies) and make it more expensive for Indian companies to pay off their foreign currency debt.