External economic situation showing stress: Finance Ministry

With many external debt parameters of India in 2011-12 close to the crisis period of 2008-09, the finance ministry on Monday stated there was cause for concern.

It said the country’s external vulnerability indicators had witnessed some signs of stress. This, the ministry said, reflected the impact of a deepening Euro zone sovereign debt crisis in particular and the global slowdown in general.

Global economic risks, it cautioned, could rise further with a weakening recovery, sluggish growth prospects, continuing high debt and gross financing needs in several advanced economies.

In a status report on external debt till 2011-12, the analysis data already in the public domain, the ministry revealed data in close similarity with those in the crisis period of 2008-09. For example, the external debt to GDP ratio, which climbed to 20 per cent in 2011-12 from 17.8 per cent in the previous year. In 2008-9, it was 20.3 per cent.

Then, the debt service ratio, the proportion of external debt payment (principal and interest) to export earnings. It rose to six per cent in 2011-12 from 4.3 per cent in 2010-11. In 2008-09, it was 4.4 per cent.

Forex cover against external debt was a little over 100 per cent in 2008-09 and the subsequent year. It fell to 99.6 per cent in 2010-11 and to 85.1 per cent in 2011-12. Concessional debt as a portion of total external debt declined from 18.7 per cent in 2008-09 to 13.9 per cent. Short-term debt, the excessiveness of which led to the East Asian crisis in the 1990s, rose to 22.6 per cent of total external debt in 2011-12 from 19.3 per cent in 2008-09.

Overall external debt was $345.8 billion as on March 31, 2012, against $305.9 bn a year before and $224.5 bn on March 31, 2009.

"Aggravating external sector risks is reflected in upward movement in India’s current account deficit, falling reserve cover for imports and external debt, a depreciating rupee exchange rate, rising levels of external debt and the increasing share of short-term and commercial borrowing in total external debt," the ministry said.

WEAK SIGNS
Year	2008-09	2009-10	2010-11	2011-12
External debt ($ bn )	224.5	260.9	305.9	345.8
External debt to GDP	20.3	18.3	17.8	20.0
Debt service ratio	4.4	5.8	4.3	6.0
Forex reserves to external debt	112.1	106.8	99.6	85.1
Concessional debt to external debt	18.7	16.8	15.5	13.9
Short term debt to external debt	19.3	20.0	21.2	22.6
Note: figures for 2010-11 are partially revised estimates and 2011-12 are quick estimates. Source: Finance Ministry

The current account deficit was a record 4.2 per cent of GDP in 2011-12.

However, despite these developments, external debt has remained within manageable limits, the ministry said. A cross-country comparison also shows India continues to be among the less vulnerable countries, with its external debt indicators comparing well with other indebted countries.

Government external debt was $ 81.9 bn at end-March 2012, compared to $78.1 bn at end-March 2011.

The share of government external debt in total external debt was lower at 23.7 per cent at end-March 2012 as compared to 25.5 per cent at end-March 2011, the ministry added.

The rise in external debt in 2011-12 could be attributed mainly to increase in commercial borrowings, short-term debt, and non-resident Indian deposits, it said.