India’s external debt reaches new high at $620.7 billion; 8.2% Y-o-Y increase

By: Yash Gupte

India's external debt increased by 8.2 percent to $620.7 billion on March 31, 2022, up from $573.7 billion on March 31, 2021. According to the status report on India's external debt 2021-22, released by the Finance Ministry on Monday, 53.2 % of this debt was denominated in US dollars, with Indian rupee debt accounting for 31.2%.

India's external debt increased by 8.2 percent to $620.7 billion on March 31, 2022, up from $573.7 billion on March 31, 2021. According to the status report on India's external debt 2021-22, released by the Finance Ministry, 53.2 % of this debt was denominated in US dollars, with Indian rupee debt accounting for 31.2%. The long-term debt estimated at $499.1 billion, constituted the largest chunk of 80.4%, while the short-term debt, at $ 121.7 billion, accounted for 19.6 % of the total. External debt as a ratio to GDP declined slightly to 19.9 % at the end of March 2022, from 21.2 % in the previous year. Foreign currency reserves as a ratio to external debt were 97.8 % at the end of March 2022, down from 100.6 % the previous year. The external debt to GDP ratio, which was over 28 % as at end-March 1991, declined to 17 % as at end-March 2006, rose to over 23 % by end-March 2015, before moderating to 20 % as at end-March 2022.

Commercial borrowings (CBs), NRI deposits, short-term trade credit, and multilateral loans made up 90% of total external debt. While NRI deposits shrank somewhat between the end of March 2021 and the end of March 2022, CBs, short-term trade credit, and multilateral loans expanded. The increase in CBs, short-term trade credit, and multilateral loans was much greater than the decrease in NRI deposits.

Short-term debt as a percentage of total external debt increased to 19.6% at the end of FY22, up from 17.6% the previous year, but remained within prudential limits. Rising imports are the reason behind short-term debt. Short-term debt has accounted for 17-20% of the country's overall external debt in recent years.

Sovereign external debt (SED) stood at $130.7 billion, up 17.1% from the previous year, reflecting the IMF's increased distribution of special drawing rights (SDR) throughout 2021-22. SDRs increased to $22.9 billion from $5.5 billion at the end of March 2021. Japan remains India's largest bilateral creditor, accounting for 74.8 % of the country's bilateral sovereign external debt at the end of March 2022, followed by Germany (11.0 %), Russia (9.9 %), and France (4.2%).

Source: Ministry of Finance

India’s external debt has continued to rise over the years. India’s external debt was recorded at $409.4 billion in 2013 which increased to $620.7 billion in the year 2022. 2017 was the only year which witnessed a fall in the external debt as the external debt was reported to be at $471 in 2017 while it was $484.8 in 2016. But it saw a major jump in 2018 as the external debt increased to $529.3 billion. It increased by 8.2 percent to $620.7 billion on March 31, 2022, up from $573.7 billion on March 31, 2021. According to reports, India's gross public debt, at 86.9% of GDP, is high but better than many other countries. The US has a gross public debt of 125.6% of GDP, France 112.6%, Canada 101.8%, Brazil 91.9%, and the UK has 87.8% of GDP.