India has the space to attract debt inflows of an additional $90 billion (about Rs 693,000 crore) given the country’s threshold level of external debt, according to research by the Reserve Bank of India.
“The empirical results suggest that compared to India’s current external debt-to-GDP ratio of 20%, the estimated threshold level is higher in the range between 23% and 24% of GDP, indicating space to attract more debt flows in the order of $90 billion,” says the RBI study on “Growth Maximizing India’s External Debt.” Given the risk of amplifying vulnerabilities external debt due to higher exposure to external debt, the estimated space can be utilized by carefully balancing the objective of growth and macroeconomic stability, he said.
The Indian debt market is gradually opening up to foreign capital in a cautious and calibrated manner.
India’s external debt is estimated at $614.9 billion at end-December 2022. Commercial Borrowings (CB) at $226.4 billion, NRI deposits at $141.9 billion and short-term trade credits at $110.5 billion, together account for about 78% of total external debt. The ratio of external debt to GDP at the end of December 2021 was 20.0%.
Total external debt, which fell below pre-crisis levels in the aftermath of the pandemic lockdown, broke through pre-pandemic levels at end-December 2020 and further consolidated thanks to NRI deposits which have crossed pre-pandemic levels at the end of December. June 2020, with commercial borrowing crossing pre-pandemic levels at end-September 2021 and short-term commercial credit crossing pre-pandemic levels at end-December 2021, the RBI said.
By contrast, India’s external debt remained relatively immune to the global financial crisis (GFC), reflecting the resilience of commercial borrowing, the most growth-sensitive and largest component of India’s external debt. . “The resilience of commercial borrowing following the GFC stemmed largely from the relatively moderate impact of the GFC on growth, in contrast to that of the GLD,” the study states.
Currently, a rules-based dynamic limit for the outstanding amount of ECB at 6.5% of GDP is in place. As India aims for higher, sustainable and inclusive growth, the need to attract larger external debt flows within the estimated threshold can be assessed along with other external vulnerability parameters so that the objective of growth is pursued while preserving global macro-stability, according to the RBI study. .
Buy now | Our best subscription plan now has a special price
External debt, by supplementing domestic savings, can help countries grow faster. But a large stock of external debt can potentially create vulnerabilities and reduce growth prospects. Since the start of the pandemic, many countries have increased their public spending to support the recovery, which has led to an accumulation of their external debt, according to the IMF.
NRI deposits down $2.87 billion in FY22
The outstanding amount of Non-Resident Indian (NRI) deposits in India decreased by $2.875 billion to $139.020 billion in the fiscal year ending March 2022, from $141.895 billion a year ago, according to the latest RBI data.
India attracted only $3.23 billion in NRI deposits in FY22 compared to $7.36 billion a year ago. The Non-Resident Rupee External Account (NR(E)RA) grew by $3.33 billion in FY22 from $8.84 billion last year. FCNR (B) deposits decreased by $3.55 billion in FY22.
Comments are closed.