India maintains external debt position with 5.3% debt-service ratio: Finance Minister

India’s external debt position: Union Finance Minister Nirmala Sitharaman has asserted that the country's external debt situation remains stable and well-managed. As of March-end 2023, India's external debt stood at $624.7 billion, with a debt-service ratio of 5.3 per cent, which falls comfortably within acceptable levels and compares favourably with other nations.

Sitharaman, in her foreword to a report titled ‘India's External Debt: A Status Report 2022-23’ released earlier this month, highlighted that the ratio of external debt to GDP had decreased from 20 per cent to 18.9 per cent over the past year. The majority of this external debt, approximately 79.4 per cent, is in the form of long-term debt, providing stability, while the remaining 20.6 per cent represents short-term debt used mainly for import financing.

Strong debt resilience

Compared to many Low and Middle-Income Countries (LMICs), India's external debt situation looks robust when assessed using various vulnerability indicators, such as the share of short-term debt in total external debt, external debt in relation to Gross National Income (GNI), forex reserves concerning external debt, and external debt relative to exports, according to Sitharaman.

The report noted a slight increase in the debt service ratio from 5.2 per cent in the previous year. This uptick was primarily driven by higher debt service payments, which rose from $41.6 billion in 2021-22 to $49.2 billion in 2022-23. The debt service ratio measures the proportion of total debt service payments, including both principal and interest, relative to external current receipts, indicating the extent to which foreign exchange reserves are earmarked for repaying debt.

Debt payment drivers

The rise in gross external debt service payments during 2022-23 was attributed to increased payments related to commercial borrowings (including multilateral and bilateral sources, up by 16.7 per cent), external assistance (increased by 17.2 per cent), and higher payments for Non-Resident Indian (NRI) deposits (up by 31.7 per cent).

Despite a marginal increase of 0.9 per cent, equivalent to $5.6 billion, in India's external debt at the end of March 2023, the country's foreign exchange reserves provided substantial coverage, accounting for 92.6 per cent of the external debt, adding to the overall stability of the situation.

(With PTI Inputs)