After a gap of seven years, India’s foreign exchange reserves slipped below its total external debt during the quarter ended September 2010.
At the end of the September quarter, India’s external debt stood at $295.85 billion, exceeding the country’s forex reserves by about $3 billion, a finance ministry report said.
India was one of the few economies, besides China, Russia, Malaysia and Thailand, which had been maintaining more forex reserves than total external debt.
However, with spurt in external debt, especially in the quarter ended September, the country’s forex reserves fell below external debt, for the first time since 2003-04.
Driven by $22.94-billion increase during July-September — the steepest rise in any quarter since March 2008 — the country’s external debt soared to $295.85 billion.
According to the finance ministry report, the country’s forex reserves worked out to be 99 per cent of its debt at the end of September.
A decade after undergoing the worst forex crisis, India’s foreign exchange reserves had for the first time exceeded the external debt in 2003-04.
After remaining more than 100 per cent, the ratio of forex reserve to total debt had been 138 per cent for 2008-09.
Quoting a World Bank report, the finance ministry said India was the fifth-most indebted country in 2008 in terms of stock of external debt.
The increase in India’s external debt at the end of September over March was mainly on account of higher commercial borrowings and short-term debt, which together accounted for 70 per cent of the total increase.
In the first half of the financial year (April-September), external commercial borrowings (ECB) rose by $10 billion to $82 billion.
Also, short-term debt increased by $13 billion in the first half to $66 billion at the end of September.
“Strong domestic demand, along with rising interest rate differentials, led to higher net inflows of commercial borrowings,” the ministry said.
