According to the finance ministry's white paper, even the reported increase is exaggerated, thanks to the weak US dollar (vis-a-vis other convertible currencies) in which the country's external debt is calculated. The dollar's (past) weakness accounts for $1.7 billion of the reported increase. The external debt stock remained virtually static, reflecting repayment of close to $3 billion, including $ 1 billion of defence debt and a reduction by close to $2 billion of short-term debt.

On the face of it, the stability of external debt is cause for satisfaction. But a developing country like India should logically borrow to invest. In the first flush of reform, corporates were quick to raise ECBs. During the nine months ended December 1998, ECBs increased by $3.6 billion,including RIBs; net of RIB money, there was thus a decline in ECBs by $600 million.

Besides US sanctions and rating downgrades the domestic economic slow down contributed to arresting the rise in external debt. It would have been a different matter if foreign direct investment (FDI) had surged along with slowing external debt.

Past increases in India's external debt have been viewed in the context of balance of payments crises. But the context is rapidly changing. Borrowings abroad support investment, growth and exports. The last assumes significance for debt servicing, slated to rise from the current annual $8-9 billion to $12 billion plus in five years. What is important is not a slowing of external debt, but a rise in investment with an focus on exports.