The Economic Survey noted that India’s external debt has remained stable over the past few years. “A stable external debt position has helped maintain external sector stability, significantly when the rest of the world is affected by geopolitical headwinds,” it said.
The ratio of external debt to foreign exchange reserves decreased to 18.9 per cent at the end of September 2024 from 20.3 per cent at the end of June 2024. The survey also stated that Real Effective Exchange Rate (REER), which reflects the real purchasing power of the currency, steadily appreciated from 103.2 in April 2024 to 107.2 in December 2024.
The Survey said the rupee depreciated a ‘modest’ 2.9 per cent in the first five months of the FY25, performing better than currencies such as the Canadian Dollar, South Korean Won and the Brazilian Real, which depreciated by 5.4 per cent, 8.2 per cent and 17.4 per cent, respectively, during the same period.
“One of the primary factors behind the rupee depreciation during 2024 has been the broad-based strengthening of the USD amidst geopolitical tensions in the Middle East and uncertainty surrounding the US election,” it said.
India’s foreign exchange reserves cover approximately 90 per cent of India’s external debt of $711.8 billion as of September 2024, reflecting a ‘strong buffer against external vulnerabilities’, the report said.
“As of 2024, India has secured its place among the world's largest foreign exchange reserve-holding countries, ranking 4th globally, following China, Japan, and Switzerland,” it said. The report highlighted foreign portfolio investments reversing the trend in October, and the first half of November 2024, resulting in a net outflow of $11.5 billion and 2.5 billion, respectively. Factors such as concerns about slowing earnings growth, high valuations, rising geopolitical tensions, and recent developments in China led FPIs to withdraw significant funds from Indian equities.
However, during the latter half of November 2024, FPIs became more optimistic about the Indian stock market, reversing the significant selling seen in October and early November 2024.
