External debt up by 13% during first half

Disturbing aspect: Forex cover to external debt falls further

India’s total external debt increased by 13% to $365.3 billion at the end of September 2012, against $323.2 billion recorded in the same period last year. The rise in external debt is largely due to higher deposits by non-resident Indians (NRIs), short-term debt and commercial borrowings. These three components together contributed to 94.7% of the total increase in the debt.

The external debt recorded an increase of about $20 billion (5.8%) over the level of $345.3 billion at end-March 2012.

The disturbing thing is India’s foreign exchange reserves provided a cover of 80.7% to the total external debt stock at the end of September 2012 compared with 85.2% at end-March 2012.

 

Furthermore, the ratio of short-term external debt to foreign exchange reserves increased to 28.7% from 26.6% in March 2012. Though economists said the situation has not reached the point of alarm, the advised caution.

Long-term debt was $280.8 billion at end-September 2012, showing an increase of 5.1% from March level, while short-term debt increased by 8.1% to $84.5 billion.

Short-term debt accounted for 23.1% of India’s total external debt as on September 30, 2012 against 22.6% six month 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 only.

The remaining (76.9%) was long-term debt as on September 30, 2012. Component-wise, the share of commercial borrowings stood highest at 29.8%, followed by NRI deposits (18.3%) and multilateral debt (13.9%).

Government (sovereign) external debt stood at $81.5 billion, (22.3% of total external debt) at end-September 2012 against $81.9 billion (23.7%) six months ago, the Finance Ministry said in a statement today.

The share of US dollar denominated debt was the highest in India’s external debt stock at 55.7%, followed by the Indian rupee (22.9%), Japanese yen (8.6%), SDR (8.1%) and euro (3.2%).

India’s foreign exchange reserves provided a cover of 80.7% to the total external debt stock at the end of September 2012 compared with 85.2% at end-March 2012. The ratio of short-term external debt to foreign exchange reserves increased to 28.7% from 26.6% in March 2012.