India’s external debt rose by little over 8 per cent at the end of Fiscal Year 2021-22 (FY22), a report by the Finance Ministry said on Monday. Over three fourth debts are long term, indicating no sudden impact on Foreign Exchange Reserve.

“India’s external debt, at $ 620.7 billion as at end-March 2022, grew by 8.2 per cent over $ 573.7 billon as at end-March 2021,” the report said. Out of this, 80.4 per cent or $499.1 billion are long term while the remaining ($ 121.7 billion) are short term ones. External debt as a ratio to GDP fell marginally to 19.9 per cent as at end-March 2022 from 21.2 per cent a year ago. Foreign currency reserves as a ratio to external debt stood slightly lower at 97.8 per cent as at end-March 2022 than 100.6 per cent a year ago.

Breaking it down

Commercial borrowings (CBs), NRIs deposits, short-term trade credit, and multilateral loans together accounted for 90 per cent of the total external debt. While NRI deposits marginally contracted during end-March 2021 and end-March 2022, CBs, short-term trade credit and multilateral loans, on the other hand, expanded during the same period. The rise in CBs, short-term trade credit and multilateral loans together was larger than the contraction in NRI deposits.

While 53.2 per cent of it was denominated in US dollar, Indian rupee denominated debt, estimated at 31.2 per cent, was the second largest.

Out of the total debt, sovereign backed ones were $ 130.7 billion- a growth of over 17 per cent. Non-sovereign external debt, estimated at $ 490.0 billion as at end-March 2022, grew 6.1 per cent over the level a year ago. CBs, NRI deposits, and short-term trade credit accounted for about 95 per cent of non-sovereign debt. The short-term trade credit rose substantially by 20.7 per cent to $ 117.4 billion as at end-March 2022 after a surge in imports during 2021-22.

Debt service ratio

The debt service ratio fell to 5.2 per cent during 2021-22 from 8.2 per cent during 2020-21 due to buoyancy in current receipts and a decline in debt service payments. “The debt service payment obligations arising out of the stock of external debt as at end-March 2022 are projected to trend downwards over the coming years,” the report said.

From a cross-country perspective, India’s external debt is modest, occupying the 23rd position globally. In terms of debt vulnerability indicators, India’s sustainability was better than the Low-and-Middle Income Countries (LMICs) as a group and vis-à-vis many of them individually, added the report.