$543 Billion!
According to India’s
Ministry of Finance’s report on external debt, India's external debt was at
around $543 billion as at end-March 2019. In terms of external debt ranking,
India ranks 24th in the world.
External debt of
India is the money owed by India to foreign creditors. In simple words, it is
the money we have borrowed which we have to pay back (along with the interest
on it).
World’s Most Indebted
Nations
With a debt of $20,263
billion, the United States is the world’s most indebted country, i.e., it has
the highest external debt. In fact, the U.S.’ external debt is a tad lower than
the combined external debt of the three next ranked countries: the United
Kingdom (second rank at $8,491 billion), France ($6,470 billion), and Germany
($5,800 billion).
Types of Debts
As you know,
based on maturity (when it becomes due for payment), there are two kinds of
debts: long-term and short-term.
A loan with a
maturity period of more than one year is termed long-term debt.
A loan with a
maturity period of less than one year, i.e., this debt would become due for
repayment in the next twelve months, is called short-term debt.
Short-term debt
includes both the principal and the interest on such loans. In other words,
short term external debt includes short term debt by original maturity as well
as long term debt (that has become due for maturity).
A government
(just about any authority) prefers long-term debt for a fundamental reason: the
longer the maturity period of the debt the lower the pressure on repayment.
In this context, it
is pertinent to cite the breakdown of India’s external debt by maturity: about 80
per cent of the total external debt is long-term (i.e., about $434 bn of $543
bn). It is a no-brainer to say that the lower short-term debt works in the
country’s favour.
Components of
External Debt
There
are several components of India’s external debt. However, for the common person
to understand something as complex as external debt, the following are the main
components of India’s external debt:
•
Multilateral credit – borrowed by the Government of India from
institutions like the International Monetary Fund and the World Bank;
•
Bilateral credit – borrowed by the Government of India from
other countries (like Japan);
•
External commercial borrowings (ECBs) – these are the
borrowings of companies like Bharti Airtel from abroad;
•
Deposits of Non-Resident Indians (NRIs). NRI
deposits are treated as liabilities as they have to be repaid to the
depositors, and
•
Foreign Institutional Investment (FII) – investment by
foreign fund houses (like mutual funds) in India’s stock markets and government
securities.
Sources of the external debt of $543 bn
The Reserve Bank
of India has a lowdown on the debt mix of the Government of India.
from the source mix, just about 19 per cent of the total external debt is owed
by the Government of India. This government debt is also called ‘Sovereign’
debt. The remaining part of the external debt is non-government debt.
Vulnerability of
the Indian economy
India is not
vulnerable to any major or minor problem arising on the external debt front.
The World Bank’s SDDS says that there is no vulnerability of the Indian economy
to external shocks on the debt front. India’s foreign exchange reserves (of around
$447 billion in November 2019) to external debt is around 82 per cent is within
manageable limits.
That's all folks!
