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c. India’s External Debt Scenario

India’s external debt crossed the half a trillion dollars mark to touch $529 billion in

March 2018 which is 2.4% higher than its level at end-March 2017.

Primary reasons for Rise in Debt: increase in commercial borrowings, short-term debt and non-resident Indian (NRI) deposits.

The increase in debt was also due to a valuation loss resulting from the depreciation of the US dollar against major currencies.

Commercial borrowings rose the highest by 30% continued to be the largest component of external debt with a share of 38.2 per cent, followed by NRI deposits which rose 9.3 per cent and accounted for 23.8 per cent of total debt.

Short-term trade credit rose 14 per cent and accounted for 19.0 per cent of total debt.

There are concerns over external sector with the rupee touching a new low versus the US dollar and the current account deficit more than doubling to 1.9% of GDP in March 2018.

Various external debt indicators are showing signs of deterioration in debt.

o The external debt to GDP ratio stood at 20.5 per cent as at end-March 2018, higher than its level per cent at end-March 2017.

o The ratio of foreign exchange reserves to total debt increased to 80.2% in March this year from 78.5 per cent last year.

o Short-term debt on a residual maturity basis (i.e., debt obligations that include long-term debt by original maturity falling due over the next twelve months and short-term debt by original maturity) constituted 42.0 per cent of total external debt at end-March 2018 and stood at 52.3 per cent of foreign exchange reserves.

o But the debt service ratio declined marginally from 8.5 per cent in March 2017 to 7.5% in March 2018.

o With global interest rates rising following the US Fed raising its policy rates, the

debt service ratio could rise by March’19.

The external debt policy of the Government of India has resulted in external debt remaining within safe and comfortable limits and in containing its rise.

The external debt management policy followed by the Government of India continues to emphasize monitoring of long- and short-term debt, raising sovereign loans on concessional terms with long-term maturities, regulating ECBs through end-use and all- in-cost restrictions and rationalizing interest rates on NRI deposits.