India’s external debt stock dropped 2.7%, or $13.1 billion, to $ 471.9 billion at the end of March from a year ago, recording the first such drop in at least five years, the finance ministry said on Friday. The decline was due to a fall in long-term debt, particularly NRI deposits and commercial borrowings.
Long-term external debt recorded a 4.4% decline to $383.9 billion as of March. Such long-term debt made up for 81.4% of total external debt at end-March 2017, against 82.8% a year before. Short-term external debt, however, rose 5.5% to $88 billion by the end of March, thanks to the increase in trade related credits — a major component of short-term debt with a share of 98.3%, the ministry said.
Government (sovereign) external debt rose to $95.8 billion at end-March, compared with $93.4 billion a year earlier. Such sovereign debt accounted for 20.3% of the total external debt, against 19.3% in the previous year.
“India’s external debt has remained within manageable limits and the external debt situation has improved in 2016-17 over 2015-16 as indicated by the increase in foreign exchange reserves cover to debt to 78.4% from 74.3%, and fall in the external debt-GDP ratio to 20.2% from 23.5%,” the ministry said in the statement.
The fall in external debt comes at a time when the NK Singh panel has chosen to keep debt, along with fiscal deficit, in the centre of fiscal management principles, moving away from the current practice of targeting only fiscal deficit. The panel has suggested a ceiling for general government (both Centre and states) debt of 60% of GDP by 2022-23. And within this overall limit, a ceiling of 40% should be adopted for the Centre, and 20% for the states.
While the Centre’s debt-to-GDP ratio was 49.4% in 2016-17, states’ stood at 21%, it said. The country’s average general government debt is as much as 28 percentage points higher than similarly-rated emerging market peers, the panel has said in the report. The government is yet to formally announce its decision to implement the report.