Foreign debt to pinch India Inc hard: Crisil

Repayments on foreign currency debt of corporate India as of March 2013 stood at $200 billion

As value of the Indian currency hits new lows almost every day the phenomenon has brought added pressures to India Inc which is already battling hard against inflation and demand slump.

Repayments on foreign currency debt of corporate India, which as of March 2013, stood at $200 billion, according to Crisil Research, is expected to shoot up as a result of the rupee depreciation against the US dollar.

"Moreover, the rupee’s depreciation will lift input costs across many sectors amidst weak demand environment as reflected in low double digit top-line growth expected in 2013-14. Even exporters are unlikely to benefit significantly as clients may seek to renegotiate contracts", added the report.

Indian companies have increasingly been resorting to borrowing abroad in order to take advantage of the lower interest rates on offer. For companies in the CNX Nifty (excluding banking and financial services), around 40% of debt is denominated in foreign currency.

"In total, corporate India had forex debt outstanding of over $200 billion as of March 2013, of which close to 45% is short-term debt. Moreover, only half their forex exposure is hedged. Persistent weakness in the rupee and heightened volatility has reduced the benefits of borrowing overseas", added the report.

Crisil expects the rupee to strengthen from its current levels, but the 2013-14 average will still be 5-8% weaker than the 2012-13 average.