EXTERNAL DEBT - ECONOMY
News: India’s
FY23 external debt rises to $624.7 billion: RBI
What's in the news?
● India’s
external debt, at end-March 2023, increased
by $5.6 billion to $624.7 billion from the year-earlier period but the
external debt to GDP ratio declined to 18.9% at end-March from 20% a year
earlier, data released by the Reserve Bank of India (RBI).
Reasons for rising external debts:
● Valuation gains due to
the appreciation of the U.S. dollar vis-à-vis the Indian rupee
and major currencies such as Yen, SDR, and euro were placed at $20.6 billion.
● Excluding
the valuation effect, external debt would have increased by $26.2 billion
instead of $5.6 billion at end-March 2023 over end-March 2022.
Long term and short term debts:
● At
end-March 2023, long-term debt (with
original maturity of above one year) was placed at $496.3 billion, recording a
decline of $1.1 billion over the end-March 2022 level.
● The
share of short-term debt (with
original maturity of up to one year) in total external debt increased to 20.6%
at end-March 2023 from 19.7% at end-March 2022.
● Similarly,
the ratio of short-term debt (original maturity) to foreign exchange reserves
increased to 22.2% at end-March 2023 (20% at end-March 2022).
Components of India's external debt:
● U.S. dollar-denominated
debt remained the largest component of India’s
external debt, with a share of 54.6% at end-March 2023.
● It
is followed by debt denominated in the Indian rupee (29.8%), SDR (6.1%), yen
(5.7%), and the euro (3.2%).
● Loans
remained the largest component of external debt, with a share of 32.5%,
followed by currency and deposits (22.6%), trade credit and advances (19.9%)
and debt securities (16.7%).
Government and Non-government sectors:
● Government sector debt
- increased to $133.3 billion during 2022-23 ($130.8 billion in 2021-22).
● Non-government sector
debt - increased to $491.3 billion during
2022-23 ($488.3 billion in 2021-22).
Share of external debt:
● Non-financial
corporations - 38.9%
● Deposit-taking
corporations (except the central bank) - 25.7%
● General
government - 21.3%
● Other
financial corporations - 9.3%
Go back to basics:
External debt:
● It
refers to money borrowed from a source
outside the country.
● External
debt has to be paid back in the currency
in which it is borrowed.
● External
debt can be obtained from foreign commercial banks, international financial
institutions like IMF, World Bank, ADB etc and from the government of foreign
nations.
● If
a country cannot repay its external debt, it is said to be in sovereign debt and faces a debt crisis.