External debt position improvesIndia’s external debt ratio improved to the best level in 13 years in FY24, declining to 18.7 percent of the GDP from 19 percent in the previous year, according to data released by the Reserve Bank of India on June 25.
Excluding the valuation effect, external debt would have increased by $48.4 billion instead of $39.7 billion at end-March 2024 over end-March 2023,” it noted.
“The share of short-term debt in total external debt declined to 18.5 percent at end-March 2024 from 20.6 percent at end-March 2023.
Dollar-denominated debt remained the largest component of India’s external debt, with a share of 53.8 percent.
The country’s foreign exchange to debt ratio improved to 97.4 percent in FY24 from 92.7 percent in the previous year.
External debt position improves
India’s external debt ratio improved to the best level in 13 years in FY24, declining to 18.7 percent of the GDP from 19 percent in the previous year, according to data released by the Reserve Bank of India on June 25.
The country added nearly $40 billion during this period, taking the total debt to $663.8 billion as of March 2024.
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“Valuation effect due to the appreciation of the US dollar vis-à-vis the Indian rupee and other major currencies such as the yen, the euro and SDR amounted to $8.7 billion. Excluding the valuation effect, external debt would have increased by $48.4 billion instead of $39.7 billion at end-March 2024 over end-March 2023,” it noted.
The valuation effect is when the value of assets held abroad changes vis-à-vis the value of domestic assets held by foreign investors.
While general government debt rose 11.5 percent as of March 2024 compared with the previous year, households and nonprofit institutions serving households declined 16.5 percent.
Other financial corporations also witnessed their debt reduce by 11.8 percent over the year.
“The share of short-term debt in total external debt declined to 18.5 percent at end-March 2024 from 20.6 percent at end-March 2023. Similarly, the ratio of short-term debt to foreign exchange reserves declined to 19 percent at end-March 2024,” the RBI said.
Dollar-denominated debt remained the largest component of India’s external debt, with a share of 53.8 percent. Around a third of debt was rupee-denominated, followed by Yen with a 5.8 percent share.
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The share of outstanding debt of non-financial corporations in total external debt was the highest at 37.4 percent, with the general government having a 22.4 percent share.
Loans were the largest component with a 33.4 percent share, followed by currency and deposits at 23.3 percent.
India’s debt servicing improved during this period, rising to 6.7 percent from 5.3 percent in the previous year.
The country’s foreign exchange to debt ratio improved to 97.4 percent in FY24 from 92.7 percent in the previous year.
S&P Global Ratings recently revised India’s outlook upwards to stable, indicating that a further improvement in general government debt will likely lead to a rating upgrade. India is currently rated 'BBB-' by the rating agency.
