External debt situation comfortable

by Janaki Samant

India’s external debt situation appears reasonably comfortable. Most of the indicators determining the sustainability of external debt appear to be in line with the past trend. However, there are concerns regarding short term debt in view of the pressure it can exert on the sharply depreciated rupee.

India’s outstanding external debt rose to USD 620.7 billion by end-March 2022. It increased by USD 47 billion over the stock of debt by end-March 2021. In each of the preceding three years, debt stock had increased by around USD 14-15 billion. So, the latest increase is more than thrice the increase in the previous three years.

Of the total outstanding external debt, 43.1 per cent is short term debt. This includes short term debt by residual maturity and by original maturity. All long term debt which will come up for repayment within one year is short term debt by residual maturity. By end-March 2022, total short term debt, that will mature within one year or by 31 March 2023, was USD 267.7 billion. Of this, USD 146 billion was short term debt by residual maturity and USD 121.7 billion was short term debt by original maturity.

Almost 96-98 per cent of short term debt by original maturity is made up of trade related credit raised by non-financial corporations. It refers to loans and credit extended for imports directly by overseas suppliers, banks and financial institutions. This increased by USD 20 billion during 2021-22, which is a 10-year high. The 20 per cent increase in outstanding trade-related credit is due to the steep rise in India’s imports during 2021-22 led by the sharp rise in global commodity prices including energy and food prices.

The ratio of short term debt to external debt has mostly been in the range of 41 to 44 per cent in the recent past. So, the ratio of 43.1 per cent by end-March 2022 is within the normal trend.

Short term debt accounts for 43.3 per cent of India’s foreign exchange reserves. It was in the range of 50 to 58 per cent till end-March 2020. But it has dropped to 43-44 per cent in the past two years. The ratio has shown an improvement over the past trend. Yet, it has become a cause for concern given the current economic developments. The Indian rupee has depreciated against the US dollar. It will come under further pressure as demand for dollars will increase since a high proportion of short term debt is coming up for redemption.

The ratio of external debt to GDP ratio was at a comfortable level of 19.9 per cent by end-March 2022. It eased from 21.2 per cent in the preceding year. Debt to GDP ratio dropped to around 19-20 per cent from end-March 2017 onwards. It had ranged higher between 21.1 per cent and 23.9 per cent in the 5-year period ending March 2016.

A comparison with other countries will help to put things in perspective. Sri Lanka’s debt to GDP ratio was at 57.7 per cent in 2020 and is likely to have increased further in the following years. For Malaysia, the ratio was higher than Sri Lanka’s at 70 per cent in 2021. For Brazil and Indonesia, the ratio was at 35 per cent. China’s external debt to GDP ratio was relatively low at 15.5 per cent, as per the data for 2021. So, compared to its crisis-hit neighbour and some of its peers, India is relatively well-placed on this parameter.

The debt service ratio - the ratio of interest payments and principal repayments to current receipts - dropped to an 11-year low of 5.2 per cent by end-March 2022. This is because of a sharp increase in current receipts to USD 798.7 billion during 2021-22 from USD 603.5 billion in the preceding year. A fall in interest payments and principal repayments is also likely during 2021-22 as these had increased to USD 49.4 billion in the preceding year. Consequently, the debt service ratio had risen to 8.2 per cent by end-March 2021. According the Ministry of Finance, higher debt service payments on account of debt restructuring/debt reorganisation undertaken by leading non-financial corporations had led to the spurt in debt service ratio by end-March 2021.

Ratio of foreign exchange reserves to total debt was at 97.8 per cent by end-March 2022. This is the second-highest level of the ratio since end-2011. A year ago, the ratio was at an all-time high of 100.6 per cent. The lower ratio can be attributed to a faster increase in outstanding external debt compared to the increase in foreign exchange reserves. The ratio is likely to have deteriorated further given the drop in foreign exchange reserves by over USD 24 billion between end-June and end-March 2022.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.7 +0.7
Consumer Sentiments Index
Base September-December 2015
71.1 -0.5
Consumer Expectations Index
Base September-December 2015
69.7 -0.8
Current Economic Conditions Index
Base September-December 2015
73.3 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 21 Dec 21 Mar 22 Jun 22
New projects 3.39 3.94 7.78 4.23
Completed projects 1.28 2.76 1.26 1.07
Stalled projects 0.28 0.08 0.28 0.25
Revived projects 0.39 1.98 0.32 0.28
Implementation stalled projects 0.26 0.65 0.09 0.08
Updated on: 19 Aug 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.9 40.6
 Expenses 26.7 21.3 19.9 42.0
 Net profit 55.8 35.4 31.1 20.8
 PAT margin (%) 9.6 9.0 9.0 7.4
 Count of Cos. 4,696 4,742 4,615 4,494
Non-financial Companies
 Income 35.6 29.1 24.9 50.7
 Expenses 35.9 28.7 25.7 53.9
 Net profit 59.4 19.1 11.3 7.8
 PAT margin (%) 8.8 7.5 7.8 6.0
 Net fixed assets 4.9 2.1
 Current assets 10.9 15.2
 Current liabilities 0.8 11.7
 Borrowings 12.2 3.6
 Reserves & surplus 12.4 11.4
 Count of Cos. 3,384 3,428 3,347 3,282
Numbers are net of P&E
Updated on: 19 Aug 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.0 23.3
 Expenses 0.4 -3.2 21.6
 Net profit -5.8 73.3 56.0
 PAT margin (%) 2.0 4.4 9.8
 Assets 9.0 9.9 10.4
 Net worth 4.8 11.7 13.2
 RONW (%) 3.4 6.8 13.8
 Count of Cos. 32,624 30,686 2,465
Non-financial Companies
 Income -1.1 -2.0 31.4
 Expenses -0.9 -4.1 30.9
 Net profit -22.0 64.3 53.5
 PAT margin (%) 2.2 4.0 8.9
 Net fixed assets 11.2 2.2 4.3
 Net worth 2.1 10.7 14.0
 RONW (%) 4.6 7.8 17.2
 Debt / Equity (times) 1.2 1.0 0.6
 Interest cover (times) 1.9 2.4 6.5
 Net working capital cycle (days) 82 86 51
 Count of Cos. 25,818 24,102 1,800
Numbers are net of P&E
Updated on: 12 Aug 2022 10:17AM