India less vulnerable from debt compared to other nations

India is "less vulnerable" to risks arising from public debt as compared to other developed and emerging market economies, a Finance Ministry Status Paper has said.

"India has positive attributes compared to both developed and emerging market economies and is less vulnerable to risky parameters seen either in developed and other EMEs," the Paper released today said.

It further said while several countries face problems in servicing the debts incurred for mitigating the impact of global financial crisis of 2008, the "government was able to finance larger deficit without any disruption in market mainly through domestic financing".

While general government debt for India stands at 66.4% of GDP at the end of March 2011, external debt of the government at current exchange rate if 3.6% of GDP. This amounts to 5.4% of total debt.

Pointing out that the proportion of external debt is declining, the Paper said, "government would have the option of exploring other sources of external debt to maintain a reasonable mix of domestic and external debt in its portfolio."

The Paper said, "Exposure towards foreign institutional investment in government debt in India is also at a very low level and that too in domestic currency. This mitigates the refinancing risks with respect to foreign exchange requirement."

Also, it said, floating rate bonds constitute less than three% of outstanding centre dated securities and added, "the future risk on inflation movement is not high for India for the existing stock".

Besides, the Finance Ministry said that high domestic savings rate in India as proportion of GDP has worked as a growth propeller for the economy and this further gives the country an edge over the developed economies with potential for higher investment rate in coming years, thereby aiding in future growth of economy.

"The increase in GDP at higher rate is expected to further contribute to the revenue mobilisation of the government and in turn improve the debt service ratio," it added.

Even though there is minimal risk for India at this stage for its refinancing needs of existing debt, it said, adding that the government is taking efforts to further reduce the debt.