India’s external debt rises by 13.9%

India’s external debt increased by 13.9%, from $261.2 billion in March’2010 to $297.5 billion at the end December 2010 and the share of short-term debt has declined. Depreciation of US dollar against other currencies is the main reason for increase in external debt to the extent of $36.3 billion. Commenting on the currency impact, a Department of Economic Affairs' quarterly statistics report said "Excluding the valuation effect, the increase in external debt would have been $31.0 billion.”

The share of short term debt has decreased by 1.3% for the quarter ending December’2010 which stood at $62.6 billion as against $66 billion in the previous quarter. The share of short term debt is 21% and of long term debt is 79%. The external debt has increased due to attractive interest rates in India as compared to developed nations, which is a serious issue. India's external debt to GDP ratio is currently 17% whereas the debt service ratio is 4%. Commenting on the debt structure, India's finance ministry said, "The long-term debt increased by $26.0 billion to $234.9 billion i.e. an increase of 12.5%. The short-term debt showed an increase of $10.3 billion to $62.6 billion.”

Increasing debt is a serious issue for Indian economy, which is already facing current and fiscal deficit. High levels of debt lead to increase in revenue expenditure in terms of interest payment which is unfavorable for emerging economy like India, which requires significant capital expenditures to augment growth.

Source: Dion Global Solutions Ltd

View the original article here