‘India continues to be among the less vulnerable countries’

Conceding that India’s external vulnerability indicators in recent times have witnessed some signs of stress owing to the impact of a deepening eurozone sovereign debt crisis and the global slowdown, the Finance Ministry, on Monday, maintained that global economic risks could rise further with a weakening recovery, sluggish growth prospects and a continuing high debt and gross financing needs in several advanced economies.

In its annual publication titled ‘India’s external debt: a status report 2011-12’, the Department of Economic Affairs (DEA), in such a scenario, has pointed to the aggravation of external sector risks which is reflected in upward movement in the country’s current account deficit (CAD), falling reserve cover for imports and external debt, a depreciating rupee exchange rate, rising levels of external debt and the increasing share of short-term and commercial borrowing in the total external debt quantum.

The status report presents a detailed analysis of India’s external debt position as at the end of March this year and is based on the data released by the Reserve Bank of India (RBI) on June 29, 2012. Apart from analysing the trend, composition and debt service of the country’s external debt, it provides a comparative picture of its debt vis-a-vis other developing countries and analyses the external sector vulnerabilities in view of the fluid global economic situation.

However, despite these developments, the report sought to take comfort in the fact that India’s external debt has remained within manageable limits which is indicated by the external debt-to-GDP (gross domestic product) ratio of 20 per cent and a debt-service ratio of 6 per cent in 2011-12. In fact, a country-wise comparison has also shown that “India continues to be among the less vulnerable countries with its external debt indicators comparing well with other indebted countries,” the report said.

As per the report, India’s external debt stock at end-March 2012 stood at $345.8 billion, an increase of $39.9 billion or 13 per cent over the end-March 2011 level of $305.9 billion.

The rise, it said, could be attributed mainly to increase in commercial borrowings, short-term debt, and non-resident Indian (NRI) deposits.

Of this, the long-term external debt, at $267.6 billion at the end of March this year, reflected an increase of 11.1 per cent, while the short-term debt, at $78.2 billion, marked an increase of 20.3 per cent over the level that prevailed at the end of March last year. The long-term debt accounted for 77.4 per cent of total external debt at end-March 2012.

As for government (sovereign) external debt, it stood pegged marginally higher at $81.9 billion at end-March 2012 as compared to $78.1 billion at the end of the same month a year ago. However, the share of government external debt in the country’s total external debt quantum was lower at 23.7 per cent at end-March 2012 as compared to 25.5 per cent at end-March 2011. The report claimed that India’s key debt indicators compared well with other indebted developing countries.

According to the World Bank’s ‘Global Development Finance, 2012’, India’s position was fifth in terms of absolute debt stock among the top 20 developing debtor countries. However, in terms of ratio of external debt to gross national income, India’s position was the fifth lowest.

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