India’s external debt rises by 2.1 per cent in FY21 – Know key details, what is debt-to-GDP ratio?

India’s external debt jumped by 2.1 per cent year-on-year to USD 570 billion as at March-end 2021. Know key developments relating to India’s external debt.

Created On: Oct 1, 2021 09:24 IST
India’s external debt, GDP (representational image)
India’s external debt, GDP (representational image)

India’s external debt jumped by 2.1 per cent year-on-year to USD 570 billion as at March-end 2021, despite the COVID-19 pandemic, as per the Finance Ministry. India’s external debt to GDP ratio jumped to 21.1 per cent at March-end 2021 from 20.6 per cent as at end-March 2020. However, the Reserves to external debt ratio jumped to 101.2 per cent from 85.6 per cent during the same period which made India secure the position as a net creditor to the world, as per the status report on India’s external debt by Finance Ministry.

India’s external debt as at March-end 2021 – Key developments

At March-end 2021, India’s external debt was at USD 570 million, with an increase of USD 11.5 billion over March-end 2020 level. India’s external debt to GDP ratio jumped to 21.1 per cent at March-end 2021 from 20.6 per cent as at end-March 2020.

The long-term debt was at USD 468.9 billion at March-end 2021, with an increase of USD 17.3 billion over March-end 2020 level. The short-term debt in total external debt came down to 17.7 per cent at March-end 2021 compared to 19.1 per cent at March-end 2020.

The largest component of India’s external debt was US dollar-dominated debt with a share of 52.1 per cent as of March-end 2021, followed by Indian rupee (33.3 per cent), yen (5.8 per cent), SDR (4.4 per cent), and the euro (3.5 per cent).

India’s sovereign debt as at March-end 2021

Generally, the relative rise in non-sovereign debt influences the dynamics of India’s external debt, thereby supplementing domestic savings to fund larger investments as the economy expands. However, the pandemic year caused a relative rise in sovereign debt that contributed largely to the overall growth of India’s external debt by 2.1 per cent. The increase is attributed to the COVID-19 loans.

Due to an increase in external assistance more than compensating the fall in Foreign Portfolio Investors (FPIs) in government securities, the sovereign debt at USD 107.2 billion increased by 6.2 per cent over its level at March-end 2020, the report stated.

India’s non-sovereign debt as at March-end 2021

The non-sovereign debt to USD 462.8 billion grew 1.2 per cent on a yearly basis. 95 per cent of non-sovereign debt was due to NRI deposits, commercial borrowings, and short-term trade credit. NRI deposits increased 8.7 per cent to USD 141.9 billion, short-term trade credit at USD 97.3 billion and commercial borrowings at USD 197.0 billion decreased by 4.1 per cent and 0.4 per cent, respectively.

The status report on India’s external debt by Finance Ministry stated that “over the years, policy on external debt has enabled the private sector to access foreign debt in a calibrated manner. The level of non-sovereign debt was more than four times that of sovereign debt at March-end 2021, compared to half as at March-end 1991.”

India’s external debt as at March-end 2021 – Summary

India’s external debt continues to be sustainable and prudently managed, despite the COVID-19 pandemic. Since the US dollar depreciated as at March-end 2021 over the level as at March-end 2020, a valuation loss of USD 6.8 billion was reported. Upon excluding valuation losses, India’s external debt would have been USD 4.7 billion instead of USD 11.5 billion. A weaker US dollar, COVID-19 loans, and NRI deposits have mostly contributed to the rise in India’s external debt as at March-end 2021.

In a cross-country perspective, India’s external debt in nominal terms is modest occupying 24th position globally, stated the status report on India’s external debt by Finance Ministry. All the debt vulnerability indicators continued to be benign. India’s external debt sustainability was recorded to be better than the Low-and-Middle Income Countries in terms of various debt vulnerability indicators.

What is Debt-to-GDP ratio?

The Debt-to-GDP ratio is the ratio between the debt to the gross domestic product (GDP) of a country. The ratio indicates the capability of a country in repaying its debts. A country with a low debt-to-GDP ratio indicates that it is capable of producing and selling goods and repay its debts without incurring further debt. Various economic and geopolitical factors such as recessions, interest rates, war, etc influence the debt account of a country.

 

 

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