New Debt Compilation Method

The Reserve Bank of India's (RBI) technical committee on external debt has identified specific modifications in the concept and compilation methodology of external debt.

This is to take care of the disparity problem in arriving at the external debt figure of the country arising from compilation done by various national and international agencies.

The technical group was constituted by RBI under the chairmanship of MR Nair, adviser, RBI in March 1998.

In its report released on Thursday, the committee has recommended that short term debt of the country should include short term deposits of non-resident Indians (NRI), cross border bank claims and all trade related credit of maturity up to and including one year.

 

Trade related credits of original maturity of six months to one year may be shown separately, according to the report.

The need for transparency and consistency in the definition and coverage of external debt statistics provided the rationale for the setting up of a policy group/task force in 1992.

The current data on debt have been based on its recommndations.However, developments since then necessitated the formulation of the Nair committee.

The Nair Committee has recommended that RBI should be empowered to collect information from entities with external liabilities and assets.

It has suggested that the Census of India's foreign liabilities and assets should cover:

* FII investments in debt instruments at market prices,

* liabilities and assets of branches of Indian banks abroad

* liabilities and assets of subsidiaries of Indian companies

* trade credit less than six months,

* FCNR(B) held abroad, proceeds from ECBs FCCBs etc.

* contingent external liabilities of banks and companies.

The committee has says it is necessary to capture information on such transaction on an ongoing basis.

Further, operational leases where the total lease payments exceed 75 per cent of the value of the underlying asset may be incorporated in external debt in a manner similar as financial leases.

The committee also suggests several measures to gauge the external indebtedness of the country. They include: i) short term to unencumbered forex reserve ratio ii) external liabilities to foreign assets ratio iii) debt service ratio and its movements iv) to overcome the problem of under representation conventional debt service ratio should include principal payment (including roll-overs) of short term debt and NRI deposits v) debt service payment to reserves and vi) continue monitoring valuation effects, maturity structure and currency composition of debt.