India’s External debt grew by 8.2% year on year ending March 2022

Tags: National Economy/Finance

Releasing the 28th edition of the Status Report on India’s External Debt 2021-22 the Department of Economic Affairs (DEA), Ministry of Finance, said that India’s external debt is being managed prudently and is sustainable.  There is no fear of any Sri Lanka type situation.

According to the report, from a cross-country perspective, India’s external debt is modest, occupying 23th position globally.

Total External Debt of the country 

The total external debt of the country at the end of March 2022 was USD 620.7 billion as compared to USD 573.7 billion in the same time period.

It grew by 8.2% as compared to the same time period last year.

Long and short term debt share in total external debt 

The long-term debt was estimated at USD 499.1 billion. Long term debt means loans which have a duration of one years or more.

The share of the long term debt in the total external debt was 80.4 per cent. Higher the ratio of the long term debt in the total debt is a good sign for a country.

The short-term debt was at USD 121.7 billion. The share of the short term debt in the total external debt was 19.6 percent of the total debt. The short-term trade credit was predominantly in the form of trade credit (96 per cent) financing imports. 

Short term debt means it has a maturity period of less than one year.

Favourable debt indicators 

External Debt as a ratio to GDP fell to 19.9 per cent as at end-March 2022 from 21.2 percent a year ago.  

Foreign currency reserves as a ratio to external debt stood slightly lower at 97.8 per cent as at end-March 2022 than 100.6 per cent a year ago. It means that India has enough foreign exchange to pay off its entire debt.

The share of the sovereign borrowing (money borrowed by the Government of India) was USD 130.7 billion. It increased by 17.1 percent over the same period last year mainly due to additional allocation of Special Drawing Rights (SDR) by the International Monetary Fund (IMF) during 2021-22.

The non-sovereign debt (borrowed by companies), on the other hand, grew 6.1 per cent to USD 490.0 billion over the level as of end-March 2021.

Commercial borrowings, NRI deposits and short-term trade credit are the three biggest constituents of the non-sovereign debt, accounting for as much as 95.2 per cent.

While NRI deposits declined by 2 per cent to USD 139.0 billion, commercial borrowings at USD 209.71 billion and short-term trade credit at USD 117.4 billion rose by 5.7 per cent and 20.5 per cent, respectively,

While 53.2 percent of the total external debt is denominated in US dollar, Indian rupee denominated debt, estimated at 31.2 per cent, was the second largest.

The debt service ratio fell to 5.2 per cent during 2021-22 from 8.2 per cent during 2020-21 due to buoyancy in current receipts and a decline in debt service payments.