Trade credit, ECB piling up pressure on exchange rate

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Aparna Iyer: Mumbai, Nov 15 2012, 03:57 IST

Short-term debt components, such as trade credit and external commercial borrowings, which tend to make the exchange rate volatile, have started rising again. It’s possible that increasing short-term liabilities could pressure the country’s balance of payments in the coming quarters, say economists. “Short-term trade credit can create a lot of volatility in the rupee,” said Abheek Barua, chief economist at HDFC Bank, observing that such loans have risen again. However, repayments should not be an issue. India’s foreign exchange reserves stood at $295 billion as on November 2 and seem to be comfortable to meet the short-term debt obligations.

Trade credit of about $80 billion is due for repayment between June 2012 and June 2013. Along with this, ECBs raised during the boom period of 2002-2007 are also due for redemption. Around $21 billion worth of ECBs will have to be repaid and along with non-resident Indian deposits and other short-term loans, the total debt stock that is up for repayment is a whopping $150 billion.

Meanwhile, short-term trade credit surged 8% during April-June to $70.51 billion from $65.13 billion in the previous quarter, according to data from the Reserve Bank of India; in previous quarters, trade credit had grown by just 4-5%.

Economists said that trade credit has risen in the July-September quarter as well but were unwilling to estimate the amount. Data for July-September trade credit will be released by end of December as the RBI puts off balance of payments data with a lag of a quarter. Trade-related credit such

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