India’s external debt has increased by $4.7 billion during the April-June quarter, reaching a total of $629.1 billion, as per data released by the Reserve Bank of India (RBI) on Thursday. While the debt has risen, the debt-to-GDP ratio has actually declined, providing a silver lining.
The RBI reported, “The external debt to GDP ratio declined to 18.6 per cent at end-June 2023 from 18.8 per cent at end-March 2023.”
A significant factor contributing to this increase in external debt is the valuation effect, primarily caused by the appreciation of the US dollar against major currencies like the yen and SDR, which amounted to $3.1 billion.
Breaking down the composition of India’s external debt, US dollar-denominated debt continues to be the largest component, comprising 54.4 per cent of the total at the end of June 2023. Debt denominated in Indian rupees accounted for 30.4 per cent, followed by SDR at 5.9 per cent, yen at 5.7 per cent, and the euro at 3.0 per cent.
Excluding the valuation effect, the increase in external debt would have been even more substantial, standing at $7.8 billion instead of the reported $4.7 billion at the end of June 2023 compared to the end of March 2023, as stated by the RBI.
Further analysis of the data reveals that long-term debt, defined as having an original maturity period exceeding one year, amounted to $505.5 billion at the end of June 2023. This represented an increase of $9.6 billion compared to the previous quarter.
In contrast, short-term debt, which has an original maturity period of up to one year, saw a decrease in its share as a proportion of total external debt. It declined from 20.6 per cent at the end of March 2023 to 19.6 per cent at the end of June 2023.
RBI also noted changes in the composition of external debt between the general government and non-government sectors. Outstanding debt of the general government decreased, while non-government debt increased at the end of June 2023.
Loans remained the largest component of India’s external debt, accounting for 32.9 per cent of the total, followed by currency and deposits, trade credit and advances, and debt securities.
