External Debt of India

Presentation by :Kruti Gada : Roll no : 21Group : B - 27

External Debt • Part of the total debt in a country that is owed

to creditors outside the country• The debtors can be:

– The government– Corporations – Private households

• The debt includes money owed to :– Private commercial banks– Other governments– International financial institutions :

• The International Monetary Fund (IMF)• The World Bank 

External Debt of India• Gross Domestic Product : $1.847 trillion• India’s External Debt : US $ 345.8 billion• Foreign Exchange Management Act ,1991 ( FEMA )

Debt Burden Indicators PercentagesExternal Debt to GDP 20.0

Debt Service Ratio 6.0

Foreign Exchanges Reservesto Total External Debt

85.1

Concessional Debt to Total External Debt

13.9

Short-term to Foreign Exchange Reserves

26.6

Short Term to Total External Debt

22.6

Why do India borrow externally?• Crowding-out effect • Debt service costs • To fill gap between desired

expenditure and domestically available resources

• Low domestic savings• To maintain a presence in

international bond markets• Underestimate the risks

associated with un-hedged foreign currency borrowing

• Government issuing debt in foreign currencies to stable exchange rates

Creditors Classification

• Multilateral• Bilateral• IMF• Export Credit• Commercial Borrowings• NRI Deposits• Rupee Debt• Short Term Debt

LON

G T

ER

M D

BE

T

Creditors Classification

14.67.7

1.8

5.8

30.2

16.9

0.4

22.6

Creditors Classification

MultilateralBilateralIMFExport CreditsECBNRI DepositsRupee DebtShortTerm Debt

Borrower Classification

33%

67%

2006

Government DebtNon-Government Debt

24%

76%

2012

Government DebtNon-Government Debt

CAD’s bad, real bad: and external debt is looking worse

• Difference between our external earnings and expenses before capital flows -  4.5 percent of GDP  in the fourth quarter of 2011-12

• Foreign debt now exceeds our foreign currency reserves by nearly $90 billion - No room for complacency

• Reserve Bank’s moves to further increase external borrowing for short-term capital flows - building up problems for the future – unless exports can be shored up

• Thus , external debt is looking worse

Forex loan paybacks loom

• The relative calm in the currency market may be disturbed to repay about $8 billion of maturing loans  and a likely slowdown of inflows due to revival of troubles in Europe put pressure on the rupee.

• “ECB redemption will weaken the rupee, but if there is some policy action being taken on the FDI front by the government, then we could see some flows to offset the negative bias”

• Foreign loans, including convertible bonds, worth $8 billion, are estimated to come up for redemption September, while loans worth $23 billion will have to be repaid by the end of the fiscal

• Equity inflows - Volatile. • Debt inflows appear to have slowed on bond auction

response and rising hedging costs.

International Comparison of Change in External Debt Stock

Effects of External Debt Burden

• Inflation• Hampers economic Growth

– Fiscal Deficit– Current Account Deficit

• Foreign Investor expectations– Reducing FII and FDIs

• Depletion of Foreign exchange reserves• Impacts credit-worthiness of the country

Larger the debt stock ,the lower the probability of debt repayment by the our country.

Emphasis should be given to i. Fiscal Consolidation ii. Priority Sector Investment iii. Micro Finance

External Debt Sustainability

Bibliography

• Links :– www.finmin.nic.in – World Bank Website– IMF Website– http://www.eurojournals.com/finance.htm

• Textbooks :– Business Environment by Justin Paul– External Flows and Economic Development by Sanjeev

Kumar Jain , Lokendra Kumawat, Narin Sinha

THANK YOU