November 22, 2024
India’s external debt remains within comfort zone and better than many others: Finance Minister #IndiaFinance

India’s external debt remains within comfort zone and better than many others: Finance Minister #IndiaFinance

CashNews.co

India’s external debt-to-GDP ratio at 18.7%, its debt service ratio at 6.7% and foreign exchange reserves-to-external debt ratio at 97.4% are “within the comfort zone” and way better than many middle-income countries, finance minister Nirmala Sitharaman said.

In a forward to a status report released by the finance ministry, Sitharaman underscored that India’s external debt “remains sustainable and prudently managed”.

The country’s external debt rose 6.4% from a year before to touch $663.8 billion as of March 2024, according to the status report, firmed up by the department of economic affairs.

Indian rupee-denominated loans, accounting for 31.5% of the total external debt, also “provides an element of comfort from a currency risk standpoint”, the minister said.

“The stability of the total external debt is further enhanced by the fact that the long-term debt constitutes a significant proportion of the debt, and the short-term debt is essentially incurred to finance imports,” Sitharaman added.


Globally, total external debt stood at $102.4 trillion as of December 2023, and comparative data for India was $646.1-billion, placing the country at the 24″‘ position worldwide.“Thus, India’s external debt stock is low from a cross-country perspective,” she said.Moreover, India’s share of long-term debt in total external debt as of December 2023 was 80.8%. This “signifies its low dependence on vulnerable short-term debt”, Sitharaman said. This ratio was comfortably way above the global average of 59.8%, she added.

“India’s external debt position is better than most of the Low and Middle Income Countries 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,” she added.

Global rating agencies typically highlight India’s elevated general government debt ratio, which spiked in the pandemic year but has since been moderating. The combined debt of the central and state governments will likely moderate to 81.6% of GDP in FY25 from an estimated 82.4% last fiscal, Fitch Ratings said last month.

However, senior government officials have often said the global agencies don’t quite factor in India’s low external debt ratio as they should while firming up their sovereign ratings for India. S&P, Moody’s and Fitch have retained their India sovereign ratings at the lowest investment grade.

However, S&P in May upgraded its rating outlook for the country to “positive” from “stable” after a gap of 14 years, saying robust economic expansion was having a constructive impact on the country’s credit metrics. The two others maintain the country’s outlook at “stable”