India’s external debt increased by $11.5 billion sequentially in October-December 2021 to $ 614.9 billion, compared to the second quarter, official data released on Thursday showed. It rose by $46.6 billion on a year-on-year basis for the quarter under review.

However, as a percentage of the Gross Domestic Product (GDP), the external debt declined slightly to 20 per cent as of December-end 2021 from 20.3 percent as of September-end 2021.

India’s external debt continues to be sustainable and prudently managed, said the Finance Ministry in the quarterly external debt report for the quarter ended December 31, 2021.  

It highlighted that the the short-term debt, on a residual maturity basis, accounted for 43.1 percent of the foreign exchange reserves as on December 31. 

The appreciation of the US dollar against other major currencies such as the euro and yen helped limit the rise in the external debt. Valuation gain due to appreciation of the US dollar VIS-a-vis major currencies such as Euro, Yen and special drawing rights was placed at $ 1.7 billion.

“Excluding the valuation effect, the increase in external debt would have been $13.2 billion instead of an increase of $11.5 billion at end-December 2021 over end-September 2021,” said the Finance Ministry.

As much as 52.0 per cent of the external debt was denominated in US dollars as at the end of December 2021. Rupee debt constituted 32 per cent, while that in yen and euro made up 5.3 per cent and 3.1 per cent, respectively.

Commenting on the external debt report, Madan Sabnavis, Chief Economist, Bank of Baroda, said that external debt of india has increased by $46.6 billion on a y-o-y basis. “However, the sustainability ratios have been maintained with the debt/gdp ratio at 20 per cent. While the forex reserves cover ratio is 103 per cent, this would have slipped in the last month with forex reserves dipping. However, a cover ratio of 90 per cent plus is still comfortable. The ratio of short-term debt has increased to 18.1 per cent from September, but is still lower than the pre-pandemic times”, he said.

The majority of the external debt is private. General government external debt stood at $131.4 billion as on December 31 was down from $132.0 billion as at the end of September 2021. Non-government external debt, meanwhile, rose to $483.6 billion from $471.4 billion.

Commercial borrowings remained the largest chunk of the external debt, with a share of 36.8 percent. Non-resident deposits follow with 23.1 percent and and short-term trade credit is the third-largest component at 18.0 percent.

In terms of maturity, debt with an original maturity of up to one year rose to 18.6 percent of the total external debt from 17.4 percent as on September 30. While this is a small number, short-term debt on a residual maturity basis - debt that must be repaid in the next 12 months irrespective of original maturity - rose to 44.4 percent of the total from 43.2 percent at the end of September 2021.

In absolute terms, the external debt due in 2022 stood at $273.0 billion.

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