External debt increases by 13% as on Sep 30

India’s total external debt increased 13 per cent to $365.3 billion (around Rs 20 lakh crore) at the end of September, against $323.2 billion at the end of the corresponding month last year. The rise in external debt was largely due to higher deposits by non-resident Indians (NRIs), short-term debt and commercial borrowing. These three components together contributed to 94.7 per cent of the total increase in the debt.

The external debt recorded an increase of about $20 billion (5.8 per cent) over $345.3 billion at end of March 2012. The disturbing thing is India’s foreign exchange reserves provided a cover of 80.7 per cent to the total external debt stock at the end of September, compared with 85.2 per cent at end of March.

Further more, the ratio of short-term external debt to foreign exchange reserves increased to 28.7 per cent from 26.6 per cent in March. Though economists said the situation has not reached the point of alarm, they advised caution.

Long-term debt was $280.8 billion as on September 30, showing an increase of 5.1 per cent from the March level, while short-term debt increased 8.1 per cent to $84.5 billion.

Short-term debt accounted for 23.1 per cent of India’s total external debt as on September 30 against 22.6 per cent six months ago. More the short-term external debt, the greater is the vulnerability of an economy to external shocks. In fact, East Asian crisis in the mid 1990s was caused by short-term external debts. The remaining (76.9 per cent) was long-term debt as on September 30. Component-wise, the share of commercial borrowings stood highest at 29.8 per cent, followed by NRI deposits (18.3 per cent) and multilateral debt (13.9 per cent).

Government (sovereign) external debt stood at $81.5 billion, (22.3 per cent of total external debt) at the end of September against $81.9 billion (23.7 per cent) six months earlier, the finance ministry said in a statement.

The share of US dollar-denominated debt was the highest in India’s external debt stock at 55.7 per cent, followed by the Indian rupee (22.9 per cent), Japanese yen (8.6 per cent) and euro (3.2 per cent). India’s foreign exchange reserves provided a cover of 80.7 per cent to the total external debt stock at the end of September, compared with 85.2 per cent in March.

The ratio of short-term external debt to foreign exchange reserves increased to 28.7 per cent from 26.6 per cent in March.