External debt grew 0.9% to $624b in FY23, reduces as share of GDP

  • September 8, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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External debt grew 0.9% to $624b in FY23, reduces as share of GDP

Subject: Economy

Section: External sector

Key Points:

  • India’s external debt declined to 18.9 per cent of GDP at the end of March 2023 from 20 per cent last year.
  •  However, the external debt of India rose marginally by 0.9 per cent as the external debt stood at $624.7 billion at the end of March 2023 as compared to $619.1 billon last year.
  •  India’s external debt grew by 8.2 per cent in March 2022 when compared to March 2021.

Composition of external debt:

    • Commercial borrowings remained the largest component of external debt Commercial borrowings.
    • Non-Resident Indian (NRI) deposits, short-term trade credits and multilateral loans together accounted for 89.6 per cent of the total external debt of India.
    • Long-term debt reduced by 0.2 per cent at the end of March 2023
    • Short-term debt, constituting 20.6 per cent of the total debt, rose by 5.5 per cent mainly due to 5.6 per cent increase in the short term trade credit.

The valuation effect on external debt:

    • Change in valuation of US dollar and other major currencies also plays an important role on the external debt of the country.
    • There was a valuation gain of $206 billion as of endmarch 2023 due to appreciation of the dollar vis avis the rupee and other major currencies such as yen sdr and euro.
    • Excluding the valuation effect external debt would have increased by $262 billion instead of $56 billion as of end march 2023.
  • The current foreign exchange reserve is sufficient to cover around 93 per cent of total debt.
  • It may be noted that as on august 25 forex reserves were at $594.86 billion debt
  • The debt service ratio at 53 per cent was within comfort zone
  • The sovereign external debt (SED)accountis for 21.3 per cent of the total external debt rose 19 per cent to $133.3 billion as of endmarch 2023.
  •  NonSED accounting for 78.7 per cent of the total external debt saw a growth of 0.6 per cent to $491.3 billion as of end march 2023.
  •  Although sed and nonsed have increased in absolute terms, they have reduced in terms of ratio to gdp.
Debt Service Ratio (DSR) is a financial metric that measures a country’s ability to repay its debt. Here are a few key points about the DSR: Calculation: The DSR is calculated as the total amount of debt repayments (principal and interest) divided by the country’s total national income.
economy External debt grew 0.9% to $624b in FY23