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External Debt

This document provides an overview of India's external debt. It defines external debt as money owed to creditors outside of the country, including commercial banks, other governments, and international financial institutions. The document then discusses key indicators and classifications of India's external debt, such as the debt-to-GDP ratio, composition of long-term debt, currency composition, and classifications like multilateral, bilateral, and trade credit debt. It concludes with highlights of India's external debt in 2010, including increases in commercial borrowings and short-term debt.

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63 views27 pages

External Debt

This document provides an overview of India's external debt. It defines external debt as money owed to creditors outside of the country, including commercial banks, other governments, and international financial institutions. The document then discusses key indicators and classifications of India's external debt, such as the debt-to-GDP ratio, composition of long-term debt, currency composition, and classifications like multilateral, bilateral, and trade credit debt. It concludes with highlights of India's external debt in 2010, including increases in commercial borrowings and short-term debt.

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shreya_sawhney
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© Attribution Non-Commercial (BY-NC)
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INDIA’S EXTERNAL DEBT

BY:
SECTION 1-C
HONEY AGARWAL (55)
ARZOO SINGH (56)
BARUN JHA (57)
AMIT SINGH (58)
VIJENDER SINGH (59)
SHREYA SWHANEY (60)
EXTERNAL DEBT
 External debt (or foreign debt) is that part of the
total debt in a country that is owed to creditors
outside the country.

 The debtors can be the government, corporations


or private households.

 The debt includes money owed to private


commercial banks, other governments,
or international financial institutions such as
the IMF and World Bank.
EXTERNAL DEBT DATA
 External debt data for the first two quarters
of the calendar year (ending March and June)
are compiled and released by the Reserve
Bank of India, while the data for the last two
quarters (ending September and December)
are compiled and released by the Ministry of
Finance, Government of India.
HOW MUCH TO BORROW
 The amount that any country ought to borrow is
governed by two factors:
1.how much foreign capital the economy
can absorb efficiently?

2.how much debt it can service without


risking external payment problems.

Each factor will depend on the quality of


economic management.
ASSOCIATED RISK
 Countries are sometimes exposed to BOP shocks
arising from unfavorable changes in the relative
prices of exports and imports.

 Fluctuations in commodity prices, foreign


exchange rates and world interest rates are largely
beyond the control of countries.

 It is possible to hedge against this risk. Managing


risk is an important part of public debt
management.
EXTERNAL DEBT
SUSTAINABILITY
 Sustainable debt is the level of debt which allows a
debtor country to meet its current and future debt
service obligations in full, without recourse to
further debt relief or rescheduling, avoiding
accumulation of arrears, while allowing an
acceptable level of economic growth.

 External debt sustainability can be obtained by a


country “by bringing the net present value (NPV) of
external public debt down to about 150 percent of a
country’s exports or 250 percent of a country’s
revenues
INDICATORS OF EXTERNAL DEBT
SUSTAINABILITY
(a) debt to GDP ratio,

(b) foreign debt to exports ratio,

(c) government debt to current fiscal revenue ratio

(d) share of foreign debt,

(e) short-term debt,

(f) concessional debt in the total debt stock.


DEBT TO GDP RATIO
DEBT SERVICE
1. It is the proportion of total debt service
payments (i.e. principal repayment plus
interest payment) to current receipts of
Balance of Payments (BoP), is an indicator
of debt sustainability.

2. A higher debt service ratio may also have


adverse impact on the country's sovereign
credit rating.
DEBT SERVICE RATIO
SHARE OF LONG TERM DEBT
COMPOSITION OF LONG TERM
DEBT
INTERNATIONAL COMPARISON OF RATIO OF
SHORT-TERM TO TOTAL EXTERNAL DEBT, 2008
CONCESSIONAL DEBT
1.Concessionality in external debt indicates
softer terms of a loan in relation to the
prevailing market conditions.
2. lower rate of interest, longer grace or
repayment periods.
3. It is measured by the difference between the
face value of a credit and the sum of the
discounted future debt service payments.
4. loans from International Development
Association (IDA),International Fund for
Agricultural Development (IFAD), Rupee debt
are categorized as concessional.
CLASSIFICATION OF EXTERNAL
DEBTS
(a) Multilateral,
(b) Bilateral,
(c) IMF loans,
(d) Trade Credit,
(e) Commercial Borrowings,
(f) NRI Deposits,
(g) Rupee Debt
EXTERNAL DEBT 2010
HIGHLIGHTS
(1) At end-September 2010, India’s external debt stock was
US$ 295.8 billion reflecting an increase of 12.8 per cent
over the level of US$ 262.3 billion at end-March 2010.

(2) The rise in external debt could largely be attributed to


increase in commercial borrowings, short-term trade
credits and multilateral government borrowings.

(3) The valuation effect contributed to an increase of US$


6.3 billion or 18.8 per cent to the total increase of US$
33.5 billion in external debt stock at end-September 2010
over the end-March level. Excluding the valuation effect,
the increase in external debt would have been US$ 27.2
billion.
CONT.
(4) Short-term debt accounted for 22.3 per cent of India’s external
debt while the rest (77.7 percent) was long-term debt.
Component-wise, the share of commercial borrowings stood
highest at 27.8 per cent in total external debt followed by NRI
deposits (16.9 per cent) and multilateral debt (15.8 per cent).

(5) The shares of Government (Sovereign) and non-Government in


the total external debt were 24.4 per cent and 75.6 per cent,
respectively, at end-September 2010.

(6) The ratio of short-term external debt to foreign exchange


reserves was 22.5 per cent at end-September 2010 as compared to
18.8 per cent at end-March 2010.

(7) The share of US dollar denominated debt was the highest in


external debt stock at 53.9 percent at end-September 2010
followed by the Indian Rupee (18.8 per cent).
COMPOSITION OF EXTERNAL DEBT
SHARE OF EXTERNAL DEBT
CURRENCY COMPOSITION OF
INDIA’S EXTERNAL DEBT
MULTILATERAL AND BILATERAL
DEBT
1. Multilateral creditors are primarily multilateral
institutions such as the International Development
Association (IDA), International Bank for
Reconstruction and Development (IBRD), Asian
Development Bank (ADB) etc.

2. Bilateral creditors are sovereign countries with


whom sovereign and non-sovereign entities enter
into one-to-one loan arrangements. Some of India’s
bilateral creditors who extend loans to both
sovereign and non-sovereign debtors include Japan,
Germany, United States, France, Netherlands,
Russia.
TRADE CREDITS
(I) Suppliers’ Credit: Such credit is extended
by the overseas supplier of goods in the
form of deferred payments.

(II) Buyers’ Credit: Such credit is provided by


a bank or financial institution is governed
by OECD consensus terms and carries
insurance from export credit agency of the
concerned country.
EXTERNAL COMMERCIAL
BORROWINGS
1. It includes loans from commercial banks,
other commercial financial institutions,
money raised through issue of securitized
instruments like Bonds .

2.It also includes borrowings through


Buyers’credit and Suppliers’ credit
mechanism of concerned countries,
International Finance Corporation,
Washington, Asian Development Bank (ADB)
etc.
GOVT AND NON GOVT DEBT
RUPEE DEBT
I. Rupee Debt; The outstanding state credits extended
to India by the erstwhile (USSR). The debt is
denominated in Rupees and repayment of such debt is
made primarily through the export of goods to Russia;

II. In the form of NRE,NRO, FCNR A/c.

III. FII Investments in Government Treasury Bills (TBs) and


dated securities (with an annual ceiling of US$ 5
billion).

IV. FII Investments in corporate debt securities (with an


annual ceiling of US$ 15 billion)
THANK YOU

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