The Hindu Business Line : ‘External debt data not worrisome’

Total external debt amounted to $165.4 billion as of June 2007, recording an increase of $8.7 billion or 5.6 per cent over the March-end levels. External commercial borrowings (ECBs) contributed around 63 per cent of the increase in total external debt, followed by NRI deposits (15.6 per cent).

According to Dr D.K. Joshi, Director and Principal Economist, Crisil, it was only too well known that ECBs by companies would emerge as the major component of the rise in the external debt.

This will stay as long as the interest arbitrage drives companies to make most of the favourable environment abroad to raise cheaper credit and foreign institutional investors find value in investing their money here.

This is an accepted fact and should not been seen as alarmist. Dr Joshi also discounted any immediate threat from a ballooning oil import bill saying the forex reserves are sufficient enough to help the country sail through any impending crisis.

Positive spin-off

According to Mr Ananda Bhoumik of Fitch Ratings, the Reserve Bank is faced with a Catch-22 situation where companies are seeking to benefit from the benign credit environment abroad even as investors see great value in putting their money in the booming Indian stock market.

This is driving up the value of the rupee but will, by default, have a sobering effect on the oil import bill. Mr Bhoumik sees the rupee keeping its strength in the short to medium-term.

Oil prices are high at around $80 per barrel and would remain so given the raging storm in the Mexican Gulf and unrest in producing countries such as Nigeria. But Mr Bhoumik saw some ‘capping effect’ from the expected drag on demand from a slowing US economy.

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