Increasing commercial borrowings push up external debt by 2.8%

India’s total external debt increased by 2.8 per cent to USD 558.5 billion at the end of March mainly on account of a rise in commercial borrowings, according to a report released by the Finance Ministry. The external debt stood at USD 543 billion at end-March 2019.

The ratio of foreign currency reserves to external debt stood at 85.5 per cent as at end-March 2020, as compared to 76.0 per cent a year ago, the report said.

External debt as a ratio to GDP rose marginally to 20.6 per cent as at end March 2020 from 19.8 per cent a year ago, ‘India’s External Debt: A Status Report: 2019-2020’ showed.

Compared to end-March 2019, sovereign debt shrank 3 per cent to reach USD 100.9 billion, it said, adding, this decrease was primarily due to a fall in FII investment in G-Sec – the second largest constituent – by 23.3 per cent to USD 21.6 billion from USD 28.3 billion a year ago.

Loans from multilateral and bilateral sources under external assistance- the largest constituent of the sovereign debt – grew 4.9 per cent to USD 87.2 billion, it said.

Non-sovereign debt, on the other hand, it said, rose 4.2 per cent to USD 457.7 billion mainly due to an increase in commercial borrowings – the largest constituent – by 6.7 per cent to USD 220.3 billion.

Outstanding NRI deposits – the second largest constituent – at USD 130.6 billion was almost equal to the level a year ago, it said.

In most emerging markets, as the economy expands, foreign debt typically accumulates to address shortage of domestic savings, India is no exception to this phenomenon.