Tuesday, May 22, 2018

India's External Debt

According to a recent issue of the Economist, India's financial health is in trouble. 

Rising international oil prices and a decline in exports is straining on our forex reserves, and on the other hand, a large chunk of the country's external borrowings (USD 500 billion now), is due for repayment in a few months. 

Having administered Yen Loan projects a few years ago and seen first hand the frantic to and fro that goes on between external lenders and India's Department of Economic Affairs (DEA), Ministry of Finance, any article or report that sets such borrowings in a larger context was bound to get my ready attention. This one was no diferent.

How accurate was the TE analysis? Which are the external borrowings due for repayment. and what are our options at a time when Donald Trump is churning up the Middle East?

I looked at two sources for getting a better understanding. The first was the latest available DEA Status Report (Sep., 2017) on External Debt, and then QEDS - the Quarterly External Debt Statistics collated by WB & IMF. 

While the the DEA report placed overall external debt at $ 472 billion, the QEDS, which has data from 2017-Q4, puts it at $ 513 billion. So TEs $500b was a fairly good indicative figure.

Here are some other points that emerged from the DEA report, across various parameters:

  • Duration: long term debt was 81% while short-term ones were mostly trade related credits;
  • Types: commercial borrowings (36%), NRI deposits (25%), government sovereign external debt (SED) was $95 billion  (20%);
Source: DEA report

  • Currency composition: US dollar (52%), Indian rupee (33%), SDR (5.8%), Japanese yen (4.6%) and Euro (2.9%); 
  • Concessional debt was just 9.3% of the total - mostly from SED;
  • Debt Servicing: Gross debt service payments  was $ 43.3 billion during 2016-17, a decrease of 2.2 per cent over the previous year;
  • India’s debt service payments are dominated by the External Commercial Borrowings (ECBs) which accounted for 75.1% of gross debt service payments during 2016-17;
  • Interest rates: External assistance (1.4%), NRI Deposits (4.4%) and ECBs (4.7%) -- overall "implicit" interest rate on total external debt - 2.8%;
  • Sovereign External Debt (SED) - $95b in March 2017
  • Debt from multilateral sources - 73% (external assistance) - $44b in absolute terms, of which:
    • Multilateral: IDA ($23b), IBRD ($9b), ADB ($10b), IFAD ($0.3b)
    • Bilateral: Japan ($15b), Germany ($2b), USA ($0.1b), France ($0.4b), Russia ($0.9b)
So when it comes to external assistance by way of concessional loans, they added up to just $44b (9.3%) of the total debt of $471b. Out of this Japan contributes $15b which, at second position, is larger than what we get from ADB but significantly less than the soft-loans from the World Bank. In overall terms, Japanese Yen Loans make up 3% of India's external debt!

It also turns out that there is indeed going to be a sharp increase in loan repayments. However this process started a year ago. Projections on long-term debt service payments shows that repayments were $33 billion for 2017-18, and they are going to be $29 billion for 2018-19, and then declines progressively for the next 10 years.


* DEA Status Report (Sep., 2017) - https://dea.gov.in/sites/default/files/External%20Debt%20%28English%29_0.pdf

* QEDS - Quarterly External Debt Statistics collated by WB & IMF - http://datatopics.worldbank.org/debt/qeds

* (22 Mar 18) Mint - https://www.livemint.com/Industry/4yerAga6HW5Z1KbvYdnRLO/UBS-sees-Indias-external-finances-at-risk-despite-high-rese.html

Comparison of gross external debt to GNI (source: DEA)

Japan provides the lions share of bilateral loans (3% of total debt)

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