Improved liquidity pushes up external debt

India’s external debt rose by 16.46 per cent to $261.4 billion at the end of 2009-10 on the back of an improved liquidity in the global financial system along with an additional allocation of special drawing rights of the International Monetary Fund (IMF).

The valuation effect due to weakening of the dollar against other major currencies and the rupee accounted for $6.5 billion of the $36.95 billion increase.

According to the latest external debt data released today, improved liquidity and a more stable financial environment resulted in a revival in external commercial borrowings (ECBs) and a rise in non-resident deposits. These two elements pushed up long-term sources of debt by over 15 per cent to $209 billion. The short-term debt, which has a short-term trade credit as the key element, grew at a faster pace.

This was the result of a nearly 20 per cent increase in short-term trade credit to $47.62 billion at the end of March as against $39.96 billion a year ago. Again, this was the result of better liquidity with banks internationally.
 

THE BURDEN Outstanding external debt At the end of March
(in $bn)	2008	2009	2010	% chg
Long-term debt	178.67	181.15	208.99	15.37
Multilateral	39.49	39.54	42.73	8.07
Bilateral	19.71	20.61	22.60	9.66
IMF	1.12	1.02	6.04	492.16
Trade credit	10.33	14.49	16.88	16.49
ECBs	62.33	62.41	70.99	13.75
NRI deposits	43.67	41.55	48.09	15.74
Rupee debt	2.02	1.53	1.66	8.50
Short-term debt	45.74	43.36	52.47	21.01
Total external debt	224.41	224.51	261.46	16.46
IMF: International Monetary Fund; ECB: External commercial borrowings NRI: Non-resident Indians                                                                     Source: RBI

In 2008-09, India’s external debt had increased by 0.4 per cent as non-resident deposits, short-term debt and rupee-denominated loans shrank in the backdrop of the global financial turmoil. During the period, the growth in ECBs increased by only 0.12 per cent.

An improvement in the financial position of the US banks has also resulted in the dollar credit rising to 58.2 per cent of the overall external debt. Last year, it had declined to 54.1 per cent from 55.3 per cent in March 2008.