There have been many hues and cries on rising external debt, and people have been calculating the parameters of external debt per person born in India. When India struggled to finance its imports of oil, fertilizers, medicines, and repayment of official debt in 1991, the government pledged its gold reserves to avoid defaulting on its overseas obligations. The RBI had to ship 47 tonnes of gold to the Bank of England, which brought precious $405 million in funds and a lot of criticism.
India’s external debt data is published quarterly, with a one-quarter lag. Statistics for the first two quarters of the calendar year are compiled and published by the Reserve Bank of India. The Government of India also publishes an annual status report on the debt which contains detailed statistical analysis.
India’s external debt was US$ 570 billion at the end of March 2021, while in Q3 2022 573 billion. It recorded an increase of US$ 11.6 billion over its level at the end of March 2020. The external debt to GDP ratio increased to 21.1% at the end of March 2021 from 20.6% a year ago, and the Indian rupee value is declining as compared to Dollar.
So for calculation purposes, let’s use the US $ 573 billion as our total external debt as of today may seem to be increasing. Still, if we put our foreign currency reserve as on 2022, then this figure itself speaks a different story. The total FC reserve is 634.96 billion, which means that if we pay off all our external debt, we will still have US$ 61 billion as a surplus reserve. India’s development cooperation partnership based on concessional lines of credit has been carrying out projects in 63 countries around the world. There are currently 279 LOCs worth US$ 28 billion extended to countries in Asia, Africa, Latin America, and the Caribbean. So if we go on both sides of the balance of payments page and reduce external debt with receivables, then we have enough surplus to sustain years without any incoming payments.
We should know that the US treasury department has retained India in the currency manipulator watch list in its semi-annual report submitted to Congress since COVID-19 induced a global lockdown in March’2020. The reason being higher dollar purchases by RBI of close to 5% of GDP large on account of huge capital inflows, which is higher than its threshold of 2% of GDP. This means that Indian RBI is continuously intervening in the foreign exchange market and trying to maintain the lower value of the Indian Rupee by purchasing Dollars. This means that if this intervention is removed, the expert analysis says that the actual value of the Indian rupee will be close to Rs.40 per Us$.
We have learned the lower value of the Indian rupee is not real. Still, it is a choice made by the Indian Reserve Bank of India to promote exports and remain competitive in international markets. The lower value of currency makes imports costlier, so it demotivates imports of non-essential goods. On the other side, our exported goods are better priced than global competition, attracting more buyers. It is now time for economic critics to smile, but we have a long way to go to make our economy more substantial and more competitive with nations like China.
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