India’s foreign debt up 7.6% at $440 bn in FY14 as NRI deposits rise

India's external debt stood at $440.6 billion as of end-March 2014, showing an increase of $31.2 billion or 7.6 per cent over the level at end-March 2013, according to provisional figures released by the Reserve Bank of India.

The country's foreign debt had increased 13.5 per cent in the previous year.

The increase in total external debt during financial year 2013-14 was on account of rise in non-resident deposits, mainly attributed to mobilisation of fresh FCNR(B) deposits by commercial banks under the swap scheme offered by the Reserve Bank during September to November 2013, RBI stated.

The borrowings under the swap scheme in combination with a decline in CAD and revival in equity flows helped in building up the foreign exchange reserves, RBI noted.

In terms of major components, the share of external commercial borrowings continued to be the highest at 33.3 per cent of total external debt, followed by NRI deposits (23.6 per cent) and short term debt (20.3 per cent).

The share of short-term debt in total debt witnessed a decline over the preceding quarter as well as the corresponding quarter of the previous year. Short-term debt at $89.2 billion accounted for 20.3 per cent of the total external debt as at end-March 2014 as compared to 23.6 per cent at end-March 2013, according to the release.

The ratio of short-term debt (original maturity) to foreign exchange reserves declined to 29.3 per cent as at end-March 2014 from 33.1 per cent as at end-March 2013.

Based on residual maturity, the short-term debt accounted for 39.6 per cent of total external debt as at end-March 2014 as compared to 42.1 per cent at end-March 2013. Within the short-term debt based on residual maturity, the share of NRI deposits was the highest at 31.4 per cent. The ratio of short-term debt by residual maturity to foreign exchange reserves worked out to 57.4 per cent at end-March 2014.
 
The valuation gain during 2013-14 amounted to $9.4 billion reflecting the appreciation of US dollar against the Indian rupee and other major currencies. Thus, excluding the valuation gains, the stock of external debt as at end-March 2014 would have increased by $40.6 billion instead of $31.2 billion over end-March 2013

US dollar denominated debt continued to be the largest component of India's external debt with a share of 61.8 per cent as at end-March 2014, followed by Indian rupee (21.1 per cent), SDR (6.9 per cent), Japanese Yen (5.1 per cent) and Euro (3.4 per cent).

Government (sovereign) external debt stood at $81.5 billion as of end-March 2014 against $81.7 billion at end-March 2013. The shares of government and non-government external debt in the total external debt were 18.5 per cent and 81.5 per cent, respectively, as at end-March 2014.

However, external debt indicators continue to be vulnerable with the external debt-to-GDP ratio touching a 14-year high of 23.3 in FY14 and the ratio of foreign exchange reserves-to-total debt hitting an 11-year low of 69 per cent.

On the other hand, increase in the magnitude of external debt was partly offset by the valuation change (gain) resulting from appreciation of US dollar against Indian rupee and other international currencies.

Further, share of short term debt in total debt in terms of original maturity as well as residual maturity also declined due to net repayments of short-term debt and withdrawal of FII investment from debt securities during 2013-14.