“India’s External Debt of USD 624.7 Billion Remains Modest and Comfortable, Says Finance Minister Sitharaman”
Finance Minister Nirmala Sitharaman assures that India’s external debt, standing at USD 624.7 billion as of March-end 2023, is well within the comfort zone and exhibits modesty on a global scale. She highlights improved debt-to-GDP ratios and stability in external borrowing patterns in her foreword to ‘India’s External Debt: A Status Report 2022-23.’
India’s external debt, totaling USD 624.7 billion at the end of March 2023, maintains a position of comfort and modesty from an international perspective, according to Finance Minister Nirmala Sitharaman. Her comments came as she introduced ‘India’s External Debt: A Status Report 2022-23,’ which was released earlier this month. The report highlights several positive indicators reflecting the nation’s robust external debt management.
Sitharaman emphasized that the ratio of external debt to GDP has shown a decline, reaching 18.9 percent at the conclusion of the fiscal year 2022-23, down from 20 percent a year earlier. This trend underscores India’s prudence in managing its external borrowing commitments.
In terms of the composition of external debt, the report revealed that long-term debt constituted a significant portion, accounting for 79.4 percent of the total external debt. In contrast, short-term debt made up 20.6 percent of the total, primarily utilized to finance imports. This balance in the debt structure enhances the overall stability of India’s external debt profile.
Minister Sitharaman further remarked, “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.”
One key metric of note is the debt service ratio, which marginally increased from 5.2 percent in the previous year to 5.3 percent during 2022-23. This change is primarily attributed to the rise in debt service payments from USD 41.6 billion in 2021-22 to USD 49.2 billion in 2022-23. The debt service ratio is a measure of the proportion of ‘gross debt service payments’ (including principal and interest) to ‘external current receipts,’ reflecting the extent of forex reserves utilized for debt repayment.
The report attributed the increase in gross external debt service payments during the fiscal year 2022-23 to multiple factors, including a 16.7 percent increase in debt service payments under commercial borrowings (including multilateral and bilateral sources), a 17.2 percent rise in external assistance, and a substantial 31.7 percent increase in NRI deposits.
India’s external debt, slightly higher by 0.9 percent or USD 5.6 billion compared to the previous year, stood at USD 624.7 billion as of March-end 2023. Importantly, foreign exchange reserves provided substantial coverage, accounting for 92.6 percent of the external debt.
Finance Minister Sitharaman’s assessment underscores India’s prudent external debt management practices and its ability to navigate challenges while maintaining a stable and manageable debt profile.
Sources By Agencies
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