India’s $620 billion foreign debt is sustainable: Treasury Department report

At the end of March 2022, it stood at $620.7 billion, an increase of 8.2 percent from a year ago. External debt as a ratio to GDP (gross domestic product) was 19.9 percent, while the ratio of reserves to external debt is 97.8 percent,” the report said.

Government debt of $130.7 billion rose 17.1 percent more than a year ago, mainly due to the additional allocation of special drawing rights (SDR) by the IMF in the 2021-22 period.

Non-government debt, on the other hand, grew 6.1 percent to $490 billion from the end of March 2021.

Experts had said the $620.7 billion foreign debt shouldn’t be a concern as $490 billion is non-government and the government’s share is just $130.8 billion.

Of the non-government debt, the share of non-financial corporations was approximately $250.2 billion.

Further, total debt of $620.7 billion as a percentage of gross domestic product (GDP) was 19.9 percent and the debt service ratio was 5.2 percent.

Experts also said: India cannot be compared to Sri Lanka, which is in a serious economic crisis.

The central government’s share of short-term debt – due in a year – is just $7.7 billion of the total $267 billion, experts had said.

commercial loans, NRI deposits and short-term trade credit are the three largest components of non-government debt, accounting for a staggering 95.2 percent.

While NRA deposits fell two percent to $139 billion, commercial loans of $209.71 billion and short-term trade loans of $117.4 billion rose 5.7 percent and 20.5 percent, respectively.

According to the report, debt fragility indicators remained favourable. The debt service ratio declined significantly to 5.2 percent in 2021-22, from 8.2 percent in the previous year, due to buoyant current receipts and moderate external debt payments.

The debt repayment obligations arising from the external debt position at the end of March 2022 are expected to decrease in the coming years.

From a cross-border perspective, India’s external debt is modest. In terms of various indicators of debt fragility, India’s sustainability was better than the low- and middle-income countries (LMICs) as a group and many of them individually.

According to the report, the US dollar will remain the main denominational currency at the end of March 2022, accounting for 53.2 percent of the total.

Deposits in non-residents (external) Rupee Accounts (NR(E)RA), NRO accounts and FPI Investments in Gsec and corporate bonds are among the components of India’s external debt, denominated in Indian rupees.

Indian rupee is the second most important denominational currency with a lower share of 31.2 percent of the total at the end of March 2022 than 33.3 percent a year ago, due to the erosion of outstanding FPI investments in G-Sec and corporate bonds ($50.1 billion). from $51.4 billion at the end of March 2021) and balances in NRE accounts ($100.8 billion from $102.6 billion). After the US dollar and the Indian rupee come the SDRs (6.6 percent), the Japanese Yen (5.4 percent) and euro (2.9 percent).

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