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.

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LINKS:

* 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)

Japanese ODA and India

The concept of Development Assistance has it roots in the aftermath of the Second World War, when USA poured in billions of dollars into Europe and Japan, for rebuilding shattered economies, and for creating friends and allies in a bipolar world.

As soon as the economies recovered, countries at the top of the heap formed the Organization for Economic Cooperation and Development (OECD) they, among other things, committed themselves to a certain level of assistance to the underdeveloped world – this was called the Official Development Assistance (ODA).

OECD has 30 full-time members, of which, 24 are classified as “high-income” countries. Within OECD, the Development Assistance Committee (DAC) sets the guidelines for ODA. Japan has been a member of DAC since 1961.

The objective of Japan’s ODA is “to contribute to peace and development of the international community, and thereby to help Japan’s own security and prosperity”. Since there is no pretence to altruism, during the past few years, stagnation of Japanese economy has resulted in a steady decline in its ODA. In 2004, the dip was 6.5%.

Two arms of the Japanese Ministry of Foreign Affairs (MoFA) implement ODA project – Japan Bank for International Cooperation (JBIC – yen loans) and Japan International Cooperation Agency (JICA – technical coop, grant aid). Both these agencies are set to merge under the JICA umbrella, by 2008.

Japan’s total ODA in 2003-04 was Yen 963 billion ($ 8.9b), about 0.19% of Gross National Income. Of this, India received $ 704 million and stood 5th among the top ten recipients. China topped the list at $1.4 billion.

India absorbs a little over 9% of Japanese ODA and its outstanding liabilities is Yen 1166.3 billion, as on March 2004 (Rs. 46,640 Crores / US$ 10 billion).

The OECD figure of $ 704 million to India translates in to about Rs. 3000 Crores. However, the “MoFA White Paper 2004” puts the total disbursement at $325.79 billion (~Rs. 1400 Cr). Where did this money go? – Mostly into Yen Loans (93.5%), and the rest into technical cooperation (5%) and grand aid (0.7%).

Over the past two years, there has been a steady increase of yen loans to India. In 2005, nine loan agreements were signed for Rs. 5200 Cr. ($1.15b). In 2006 10 ODA loan agreements increased to Yen 155.458 billion (Rs. 5910 cr; $ 1.3b) – a record hike of about 15%.

The yen loans come at a rate of interest (RoI) of 1.3% per annum (30 years payback) for general projects, and at 0.75% RoI for environment sector projects (40 years).

Currently 28 projects are being implemented in India, which includes major initiatives such as - Delhi metro, Vizag port expansion, improvement of Bangalore water supply & Severage (Rs.1078 cr), Bangalore metro (Rs. 1699 cr), cleaning of Hussain Sagar lake in Hyderabad (Rs. 294 cr), and a project for waste management in Kolkata.
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For more information, pls see - Yen Loan Projects in India (16 Sep., 2008) -  http://dinakarr.blogspot.com/2008/09/yen-loan-projects-in-india.html
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References:

Japan - Aid At A Glance Chart
http://www.oecd.org/dataoecd/42/5/1860382.gif

Organization for Economic Cooperation & Development (OECD)
http://www.oecd.org/about/0,2337,en_2649_201185_1_1_1_1_1,00.html

Ministry of Foreign Affairs (MOFA), Japan
http://www.infojapan.org/