The current account deficit was largely financed through debt flows with continued uncertainty in the global economy affecting the quantum of equity flows during the first quarter of 2012-13. However, the magnitude of increase in external debt was lower than that of the preceding quarter largely due to valuation gains resulting from appreciation of US dollar against Indian rupee and other international currencies.

The major developments relating to India’s external debt as at end-June 2012 are set out below:

1. India’s external debt, as at end-June 2012, was placed at US$ 349.5 billion showing an increase of US$ 3.9 billion or 1.1 per cent over the level at end-March 2012. The increase in total external debt during the quarter was primarily on account of rise in Non-resident external rupee denominated ((NR(E) RA) deposits, reflecting the impact of deregulation of interest rates in these deposits in December 2011. There has been sizeable rise in short-term trade credit as well.  

2. Excluding the valuation gains due to the appreciation of the US dollar against Indian rupee and other international currencies, the external debt as at end-June would have increased by US $ 11.8 billion over end-March 2012.

3. In terms of major components, the share of external commercial borrowings (ECB) continued to be the highest at 30.0 per cent of total external debt, followed by NRI deposits (17.4 per cent) and multilateral debt (14.2 per cent).

4. Based on residual maturity, short-term debt accounted for 42.9 per cent of the total external debt as at end-June 2012. Of this, the share of NRI deposits was 28.8 per cent. The share of short-term debt in total debt, by original maturity, was 23.0 per cent.

5. The ratio of short-term debt (original maturity) to foreign exchange reserves rose to 27.8 per cent as at end-June 2012 from 26.6 per cent as at end-March 2012.

6. The debt denominated in US dollar continued to be the highest with a share of 56.3 per cent in total external debt as at end-June 2012 followed by the Indian rupee (21.4 per cent) and Japanese Yen (9.1 per cent).

7. The ratio of foreign exchange reserves to external debt as at end June 2012 at 82.9 per cent was lower than the level of end-March 2012.

1. India’s External Debt as at end-June 2012

India’s external debt, as at end-June 2012, was placed at US$ 349.5 billion showing an increase of US$ 3.9 billion or 1.1 per cent over the end-March 2012 level primarily on account of Non-resident external rupee ((NR(E) RA) denominated deposits and short-term trade credits (Table 1). Significantly, the stock of multilateral debt and ECB at the end of June 2012 was lower than that of the level at end of March 2012. The decline in the stock of ECB was mainly due to higher repayments during the quarter.

The share of short-term debt in total debt rose over the preceding as well as corresponding quarter of the previous year. The long-term debt at US$ 269.1 billion and short-term debt at US$ 80.5 billion accounted for 77.0 per cent and 23.0 per cent, respectively, of the total external debt as at end-June 2012 (Table 2). Although, widening CAD was largely financed through debt flows, rise in magnitude of debt over the preceding quarter has been relatively moderate as a part of the rise was offset by valuation gains.

2. Valuation Changes

The valuation gain during the first quarter of 2012-13 amounted to US$ 7.9 billion reflecting the appreciation of US dollar against the Indian rupee and other major currencies. Thus excluding the valuation gains the stock of external debt as at end-June 2012 would have increased by 11.8 billion.

3. Currency Composition of India’s External Debt

The US Dollar denominated debt continued to be the largest with a share of 56.3 per cent in the total external debt as at end-June 2012 followed by Indian rupee (21.4 per cent), Japanese yen (9.1 per cent), SDR (8.3 per cent) and Euro (3.3 per cent)

4. External Debt by Residual Maturity

Based on residual maturity, the short-term debt accounted for 42.9 per cent of total external debt as at end-June 2012. Within the short-term debt, the share of NRI deposits was the highest at 28.8 per cent. The ratio of short-term debt by residual maturity to foreign exchange reserves worked out to 51.8 per cent at end-June 2012 (Table 3).

5. Government and Non-Government External Debt

Government (Sovereign) external debt stood at US$ 80.1 billion as at end-June 2012 as against US$ 81.9 billion as at end-March 2012. The shares of Government and non-Government external debt in the total external debt were 23.0 per cent and 77.0 per cent, respectively, as at end-June 2012 (Table 4).

6. Select Indicators of External Debt

Among the indicators of external debt considered for assessing vulnerability, almost all the indicators showed some deterioration as at end-June 2012 as compared to end-March 2012. Debt service ratio, however, showed a tad better during the first quarter 2012-13 than 2011-12 (Table 5).

The data on external debt outstanding as at end-June 2012, along with revised data for the earlier quarters are set out in Statement 1 and 2.

Ajit Prasad
Assistant General Manager

Press Release : 2012-2013/535