"Understanding India's Economic Stability"

Union Finance Minister Nirmala Sitharaman has emphasized the stability of India’s external debt situation. According to data as of March 2023, India’s external debt totaled $624.7 billion, with a debt-service ratio of 5.3%, well within acceptable levels compared to other countries.

Sitharaman, in her foreword to the ‘India’s External Debt: A Status Report 2022-23,’ noted a decrease in the external debt-to-GDP ratio from 20% to 18.9% over the past year. Most of this external debt, approximately 79.4%, consists of long-term debt, providing stability, while the remaining 20.6% is short-term debt used mainly for import financing.

Compared to many Low and Middle-Income Countries (LMICs), India’s external debt situation appears robust when considering various vulnerability indicators. These indicators include the share of short-term debt in total external debt, external debt relative to Gross National Income (GNI), forex reserves concerning external debt, and external debt relative to exports.

The report noted a slight increase in the debt service ratio from 5.2% in the previous year, primarily due to higher debt service payments. Payments increased from $41.6 billion in 2021-22 to $49.2 billion in 2022-23. The debt service ratio measures the proportion of total debt service payments, including both principal and interest, relative to external current receipts, indicating foreign exchange reserve allocation for debt repayment.

The increase in gross external debt service payments in 2022-23 was attributed to higher payments related to commercial borrowings, external assistance, and Non-Resident Indian (NRI) deposits.

Despite a marginal 0.9% increase in India’s external debt at the end of March 2023, the country’s foreign exchange reserves covered 92.6% of the external debt, contributing to overall stability.

Re-reported from the article published in Republic TV