BENGALURU: A recently-released World Bank report says that India’s external debt position may be improving.The report, titled ‘International Debt Statistics 2017’, shows that India fares much better than its Brics counterparts except China. The data also that India’s borrowing from the International Monetary Fund has been falling since 2014.
India’s long-term external debt for 2017 is $392,483 million and short-term debt stands at $81,562 million. Currently, the external debt to gross national income (GNI) ratio is 23.4 per cent. India has a GNI of $2,049,502 million. GNI is the total domestic and foreign output claimed by residents of a country.
A country can service its external debts depending on its exports. China has been able to keep its external debt-to-GNI ratio at 13.1 per cent. This is China’s lowest debt-to-GNI ratio since 2000.
South Africa, Russian and Brazil have fared very poorly compared to China and India with external debt stock to GNI ratio at 45.2 per cent, 36.3 per cent and 31.3 per cent, respectively.
“External debt is determined by the kind of policy mix that the government has in place for borrowing funds for private and public purposes. It would further depend on the kind of interest rates prevailing in an economy, as one of the advantages of external debt is that it is at a lower cost excluding the exchange rate risk,” says Rishi Shah, economist, Deloitte India.
On whether India’s external debt far outweighs the World Bank’s yardstick, Shah says, “Within the emerging market peer group of the Brics nations, China has the most comfortable position followed by India being a clear second. It is important to note that despite the economic liberalisation of the 1990s, the domestic economy has not fallen into an external debt trap, defined as borrowing to make interest payments. Given the growth outlook and scope for further reform, India seems to be in a somewhat comfortable position with regards to external debt.”
Girish Vanvari, national head of tax, KPMG in India, says India needs “to do things which will raise domestic capital formation” so that the country can repay its piling debts.
“The government needs to push private participation in bigger projects. They need to be given tax concessions on the line of 80C, to make the money flow in that direction. This will lower the reliance on external debt and growth can be funded from India internally,” he adds.