External debt to GDP ratio higher at 21%, current receipts ratio up to 127%

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Mumbai, Aug 28: THE increase in external debt to GDP ratio declined to 21.4 per cent as on end-March 2001 from 21.9 per cent at the end of the preceding fiscal despite an increase in external debt.

The ratio of debt to current receipts fell to 126.9 per cent as on end-March 2001 from 145.5 per cent as of end-March 2000.

The proportion of short-term debt to total external debt declined to 3.5 per cent (four per cent). As a result, the ratio of short-term debt to foreign exchange reserves declined from 10.3 per cent as of end-March 2000 to 8.2 per cent as of end-March 2001.

The interest service ratio continued its downward trajectory, declining to 6.4 per cent during 2000-01 (from 7.3 per cent). The debt service and liability service ratios at 17.1 per cent and 18.3 per cent, respectively, during 2000-01 were marginally higher than that of 16.2 per cent and 17 per cent during 1999-2000.

The increase in the debt service and liability service ratios during the year was primarily due to prepayments of external assistance and refinancing of commercial debt.

During the 1990s, there has been a consolidation of external debt. The sustainability of external debt improved with robust growth in current receipts, containment of the current account deficit (CAD), capping of short-term debt flows and predominance of equity flows in the capital account.

The capital flows were used to build up the foreign exchange reserves instead of financing current import requirements.

The increase in external debt during the year was mainly due to the accretion of $5.5 billion under the ‘India Millennium Deposits’ (IMDs).
However, the overall increase in external debt during the year was contained at $2.1 billion in view of sluggishness in normal commercial
borrowings and valuation factors. While the proportion of multilateral (excepting IMF) and bilateral debt in the total debt declined to 47.6 per cent as of end-March 2001 (50.5 per cent), that of rupee debt fell to 3.7 per cent from 4.5 per cent over the same period.

The share of commercial borrowings (including long-term trade credits) in total external debt at 29.9 per cent as of end-March 2001 was higher than that of 27.1 per cent as of end-March 2000.

This reflected accretions on account of the IMD. The proportion of long-term non-resident deposits also increased to 15.4 per cent (13.8 per cent) over the same period.

Robust growth in merchandise exports, supported by the continuing buoyancy in private transfers and software exports, contained the current account deficit at $2.5 billion (0.5 per cent of GDP) during 2000-01 as compared with $4.6 billion (one percent of GDP) in 1999-2000, in spite of a sharp rise of $3 billion in the petroleum-oil-lubricant (POL) import bill.

The current account deficit has averaged 1.3 per cent of GDP over the 1990s in response to concerted efforts to bring strength and stability to the external sector in the wake of the crisis of 1990-91 when the current account deficit turned unsustainable at 3.1 per cent of GDP.

The consolidation of the current account deficit in the ensuing period was accompanied by structural shifts in the financing of the current account gap with the growing dominance of private capital flows, mainly equity.

The uncertainty characterising international financial markets had a significant bearing on the developments in the capital account as reflected in the quantum and composition of the capital flows during 2000-01.

The net capital flows were lower at $9 billion than the previous year’s level of $10.4 billion. Inflows under external assistance and normal commercial borrowings remained subdued.

External commercial borrowing in the form of trade credits, bonds, syndicated loans and other instruments showed a sharp decline which was more than compensated by the mobilisation of funds through the launching of IMDs.

The proportion of relatively stable flows (capital flows excluding portfolio flows and short-term trade-credits) to total capital flows increased marginally to 68.2 per cent in 2000-01 (67.4 per cent).