Rising External Debt, Falling Debt-to-GDP Ratio

In its latest report, the Reserve Bank of India has provided key insights into India’s economic indicators. The report highlights that India’s external debt has increased by $39.7 billion, reaching a total of $663.8 billion by the end of March 2024. These figures would have been slightly higher if the valuation effect had not been considered. Valuation effects are changes in the value of assets held abroad relative to the value of domestic assets owned by foreign investors. However, the report also notes a positive trend, with the external debt-to-GDP ratio dropping from 19% in 2023 to 18.7% in 2024. 

In the words of RBI, “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.” They further added, “US dollar-denominated debt remained the largest component of India’s external debt, with a share of 53.8 per cent at end-March 2024, followed by debt denominated in the Indian rupee (31.5 per cent), yen (5.8 per cent), SDR (5.4 per cent), and euro (2.8 per cent).

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They further mentioned that the government debt increased by 11.5% annually. On the contrary, the households and nonprofit institutions serving households declined by 16.5%. RBI also released the data on the bifurcation of external debt, “Loans remained the largest component of external debt, with a share of 33.4 per cent, followed by currency and deposits (23.3 per cent), trade credit and advances (17.9 per cent) and debt securities (17.3 per cent).”

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