India is in good standing in the international community as a country that has the capacity to service its external debt. India’s external debt of $339.5 billion at the end of 2013 was equivalent to 70.9 per cent of its exports (goods, services and primary income) in 2013, according to the latest World Bank data. This was as much as 18.3 per cent of the country’s gross national income during the year.

The country was in a better position than BRICS compatriot Brazil, whose external debt has ballooned to 140.4 per cent of its exports; ergo, the country could not hope to service the debt through its export earnings.

The quantum of debt was equivalent to 18.6 per cent of the South American country’s gross national income.

Payment capacity

What constitutes external debt? It is the sum of a nation’s short-term external borrowings plus the debt service payments due in total - on public, publicly guaranteed, and private non-guaranteed long-term external loans - over their life. This amount is then discounted to the present value. A lower ratio of debt to exports, as well as gross national income, is better, as it signifies greater capacity to service external obligations through current resources without the need for further borrowing.

Another of its partners in the BRICS grouping, South Africa, was able to maintain a better footing vis-à-vis external debt obligations, with the proportion of its debt in comparison to exports pegged at 60.4 per cent. But this was equivalent to 20.4 per cent of the nation’s gross national income.

In comparison, even though the present value of China’s external debt was nearly twice that of India, at $839.7 billion, this was only equivalent to a third of that country’s exports and just 9.1 per cent of gross national income.

Countries like Turkey and Argentina were also in the unenviable position of shouldering high debt vis-à-vis their exports.

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