Are Indian’s external borrowings a cause for concern?

At the end of June 2022, India’s total External Borrowings (foreign currency Debt) was at USD 617 billion.

Is that a cause of concern?

Let us decode.

External Borrowings – Some Key Pointers

  • In terms of percentage of GDP, we are around 19%. The worst we have seen this ratio is at 28%, in 1991.
  • Long Term Debt was nearly 80% of this
  • The highest exposure is to USD, with nearly 54% of the debt denominated in USD
  • The next largest currency exposure is INR (Non Resident Rupee Accounts, NRO Accounts)
  • Out of the USD 617 bn, government Debt was about USD 130 bn (4% of GDP). Remaining is by corporate, including banks.
  • India’s forex reserves to total external debt are about 90%. This number was below 70% in 2014.
  • Remember, domestic debt can always be repaid by printing money. But external debt is usually the cause of concern for many geographies.

In general however, India is far better placed as compared to some other countries on the external debt front. At 19% of GDP it is not really a cause for concern. Additionally, since government debt is low within this, it is even lesser a problem, since there are lesser systemic issues due to this.

If you want to read details about this, follow the below links on the RBI website

India’s external debt situation at the end of June 2022

 

That’s it from us this week. Till next week. Keep learning.