India’s external debt of $624.7 bn in 'comfortable' zone: FinMin

Union Finance Minister Nirmala Sitharaman, in her foreword to 'India's External Debt: A Status Report 2022-23' released earlier this month, says India’s external debt of $624.7 billion as of end-March 2023 has been "comfortable" and "prudently managed" over time and in cross-country perspective.

The external debt of the country grew marginally by 0.9% ($5.6 billion) over the previous year, while external debt as a ratio to GDP declined to 18.9% at the end of March 2023 from 20% at the end of March 2022. Foreign exchange reserves covered 92.6% of the external debt at the end of March 2023.

Long-term debt, accounting for 79.4% of the total debt, reduced by 0.2% to $496.3 billion as of the end of March 2023. The short-term debt, constituting 20.6% of the total debt, rose by 5.5% to $128.4 billion as of March 2023, mainly due to a 5.6% increase in the short-term trade credit, the report adds.

"From a cross-country perspective, India’s external debt position is comfortable based on the standard set of indicators of debt vulnerability, measured both in terms of nominal and present value," the minister noted.

Sovereign External Debt (SED), accounting for 21.3% of the total external debt, rose by 1.9% to $133.3 billion as of the end of March 2023. Non-SED, accounting for 78.7% of the total external debt, posted a growth of 0.6% to $491.3 billion as of March 2023.

"Although SED and non-SED have increased in absolute terms at end-March 2023, they have reduced in terms of ratio to GDP. While the ratio of SED to GDP reduced to 4.0 per cent from 4.2 per cent, the ratio of non-SED to GDP reduced to 14.8 per cent at end-March 2023 from 15.8 per cent at end-March 2022," the report adds.

The largest borrowers were non-financial corporations -- with an outstanding debt of $243.3 billion -- followed by deposit-taking corporations other than the Central bank (US$160.2 billion), general government (US$133.3 billion), and other financial corporations ($58.3 billion).

The US dollar continues to be the leading currency of denomination accounting for 54.6% of the total external debt as of March 2023, followed by the Indian Rupee (29.8%), SDRs (6.1 %), Japanese Yen (5.7%), and Euro (3.2%).

"There was a valuation gain for the level of external debt of US$ 20.6 billion as of March 2023 due to the appreciation of the US dollar vis-a-vis the Indian Rupee and other major currencies, such as Yen, SDR, and Euro. Excluding the valuation effect, external debt would have increased by US$ 26.2 billion instead of US$ 5.6 billion at end-March 2023 over end-March 2022."

India’s gross external debt service payments increased to $49.2 billion in 2022-23 compared to $41.6 billion during the previous year, recording an increase of 18.4%. However, the debt service ratio during 2022-23 has increased marginally to 5.3% from 5.2% during the previous year due to a pick-up in the current receipts. The report says the debt service payment obligations arising out of the stock of external debt as of the end of March 2023 are projected to decline over the medium-term horizon broadly.