India’s External Debt

27.06.2024

India’s External Debt

Why in the news?   

India's external debt was placed at $663.8 billion, an increase of US$ 39.7 billion over its level at end-March 2023, informed the Reserve Bank of India recently.

About India’s External Debt:

• At end-March 2024, India’s external debt was US$ 663.8 billion, an increase of US$ 39.7 billion over its level at end-March 2023.
• The external debt-to-GDP ratio declined to 18.7 percent at the end-March 2024 from 19.0 percent at the end-March 2023.
• The Valuation effect due to the appreciation of the US dollar vis-à-vis the Indian rupee and other major currencies such as the yen, euro and SDR amounted to US$ 8.7 billion.

○Valuation effects are the change in value of assets held abroad with regard to the value of domestic assets held by foreign investors.

○Excluding the valuation effect, external debt would have increased by US$ 48.4 billion instead of US$ 39.7 billion at end-March 2024 over end-March 2023.

• At end-March 2024, long-term debt (with an original maturity of above one year) was placed at US$ 541.2 billion, recording an increase of US$ 45.6 billion over its level at end-March 2023.
• The share of short-term debt (with an original maturity of up to one year) in total external debt declined to 18.5 percent at end-March 2024 from 20.6 percent at end-March 2023.
• Similarly, the ratio of short-term debt (original maturity) to foreign exchange reserves declined to 19.0 percent at end-March 2024 (22.2 percent at end-March 2023).
• US dollar-denominated debt remained the largest component of India’s external debt, with a share of 53.8 percent at end-March 2024, followed by debt denominated in the Indian rupee (31.5 percent), yen (5.8 percent), SDR (5.4 percent) and euro (2.8 percent).
• Outstanding debt of both government and non-government sectors increased at end-March 2024 over the level a year ago.
• The share of outstanding debt of non-financial corporations in total external debt was the highest at 37.4 percent, followed by deposit-taking corporations (except the central bank) (28.1 percent), general government (22.4 percent) and other financial corporations (7.3 percent).
• Loans remained the largest component of external debt, with a share of 4 percent, followed by currency and deposits (23.3 percent), trade credit and advances (17.9 percent) and debt securities (17.3 percent).
• Debt service (i.e., principal repayments and interest payments) increased to 6.7 percent of current receipts at end-March 2024 from 5.3 percent at end-March 2023, reflecting higher debt service.

                                                               Source: The Economic Times

Ques :- With reference to India’s External Debt, consider the following statements:

1. Short-term debt (with an original maturity of up to one year) constitutes the majority of India’s external debt.

2. US dollar-denominated debt remained the largest component of India’s external debt.

3. Loans remained the largest component of India’s external debt, followed by currency and deposits.

How many of the above statements are correct?

A.Only one

B.Only two

C.All three

D.None

Answer B