India’s external debt

This FT news-story by James Crabtree mentions a warning by the IMF President Ms. Lagarde on India’s external debt. India’s long-term external debt is big. At the end of 3Q2014, the government (Central and State governments) had about USD88.3bn of it. Bulk of it was in the form of loans (USD60.6bn) and bulk of it must be concessional loans. Banks had about USD123.3bn of long-term external debt. Most of it was under ‘Currency and Deposits’ (USD108.72bn). They must be mostly non-resident fixed deposits of tenure longer than one year. The private corporate sector had about USD157.7bn of long-term debt. Bulk of it is in the form of loans (USD127.6bn). Some of it is in the form of debt securities (USD29.3bn).

There is a small discrepancy between the external debt figure based on annual data as of end-2013 and the quarterly data. It is about USD5-6bn and can be ignored. What I had not done so far is to split the annual long-term external debt data between banks (financial) and other commercial borrowers (non-financial). I am sure it is available somewhere. My efforts to dig them out have not been fruitful so far.

Ms. Lagarde had said that dollar denominated corporate debt had risen “very rapidly, nearly doubling in the last 5 years” to $120bn. As of end of 3Q2014, it has risen to USD157.7bn. So, Indian corporations have indeed gorged on foreign currency denominated debt. What have they to show for it, in terms of capital formation in the country?

Frankly, Indian corporate debt rising (domestic and external) in the last decade and more, lack of less-than-commensurate capital formation in the private sector and the rise in the personal net worth of promoters need to be examined in an interconnected fashion.

My piece in MINT last week examined the issue mostly from the point of view of short-term vulnerability – short-term external debt and current account deficit – particularly in the light of the so-called ‘impending’ tightening of monetary policy by the Federal Reserve Board in the US.

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