The finance ministry on Friday asserted that India’s external debt position was quite under control and within manageable limits, as its foreign borrowings as a proportion of gross domestic product (GDP) fell to 17.3 per cent during 2010-11 from 18 per cent a year ago.
However, economists said India’s external debt position was never critical after 1991-92 and the greater challenge for the country was to tackle issues like high inflation, reviving industrial expansion and hence GDP growth, while keeping the fiscal deficit under control.
The ministry also stressed that the country’s capacity to pay these debts was robust, since the debt-service ratio, the ratio of these debts (principal and interests both) to the current receipts in balance of payments, declined to 4.2 per cent during 2010-11 from 5.5 per cent a year ago. External debt service payments slightly declined to $18.7 billion ($12.6 billion of principal and $6.1 billion of interest payments) in 2010-11 from $19 billion ($13.5 billion as principal and $5.7 billion as interest) in 2009-10.
Despite India going for liberalisation policies in 1991, the external debt-to-GDP ratio has declined considerably since reforms. During 1991-92, it had stood at a whopping 38.7 per cent. The debt-service ratio was similarly at 30.2 per cent that year.
“India’s external debt has remained within manageable limits despite the increase in absolute terms,” the ministry said in a statement.
In absolute terms, external debt rose to $305.9 billion during 2010-11 from $261 billion a year ago and $224.5 billion during 2008-09.
However, the foreign exchange-to-external debt ratio has declined considerably from 112.1 per cent during 2008-09 to 106.9 per cent a year later to 99.6 per cent in 2010-11.
Though, theoretically a ratio below 100 per cent should not be there, the worrying point had not come, Deloitte Haskens & Sells director Anis Chakrabarty said.
He said the data was important to study, but the critical points were challenges faced by India in areas such as inflation, GDP and fiscal deficit. GDP growth for India has been less than eight per cent for two consecutive quarters, Chakrabarty said. At 7.7 per cent for the first quarter of this financial year and 7.8 per cent for the fourth quarter of 2010-11, India’s economic growth does not seem to be too low when other economies are slowing, but from India’s own benchmark it is not robust, he added.
Similarly, despite 11 rate increases since March 2010, inflation has been over nine per cent for the last eight months. Also, there are doubts whether the government will be able to rein in fiscal deficit at the targeted level of 4.6 per cent of GDP during 2011-12 or not.
