India’s external debt of $624.7 billion at March-end 2023 with a debt-service ratio of 5.3% is within the comfort zone and modest from a cross-country perspective, Finance Minister Nirmala Sitharaman has said.
In her foreword to ‘India’s External Debt: A Status Report 2022-23’ released earlier this month, Ms. Sitharaman said the ratio of external debt to GDP declined to 18.9% at March-end 2022-23 from 20% a year ago.
The long-term debt constituted 79.4% of total external debt, while short-term debt, which is 20.6% of the total external borrowing, is basically incurred to finance imports, enhancing the stability aspects of the total external debt, she said.
“From a cross-country perspective, India’s external debt position is better than most of the low and middle-income countries (LMICs) as measured by select vulnerability indicators, such as share of short-term debt in total external debt, external debt to GNI (Gross National Income), forex reserves to external debt and external debt to exports,” the Minister noted.
Marginal increase
The report said the debt-service ratio during 2022-23 increased marginally to 5.3 % from 5.2 % during the previous year, mainly due to a rise in debt service payments from $41.6 billion in 2021-22 to $49.2 billion in 2022-23.
The debt-service ratio is measured by the proportion of gross debt service payments (both principal and interest) to external current receipts, which indicates the extent of pre-emption of forex reserves for the purposes of repayment of principal and interest out of the stock of foreign debt.
The increase in gross external debt service payments during 2022-23 was due to the combined impact of an increase in debt service payments under commercial borrowings, including through multilateral and bilateral sources (16.7 %), external assistance (17.2%) and an increase under NRI deposits (31.7%), the report said.
India’s external debt at $624.7 billion as of March-end 2023 is marginally higher by 0.9% or $5.6 billion over the previous year. Foreign exchange reserves covered 92.6% of the external debt at March-end 2023, it added.