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External Debt in India is the amount India owes to foreign creditors. The debtors could include the Union government or state governments, companies or even citizens of India. The debt includes debts owed to commercial banks of private companies, foreign governments, and international financial institutions like the International Monetary Fund (IMF) and the World Bank. India’s external debt data is released quarterly, with an average delay of one quarter. Statistics for the initial two months of the calendar year are collected and released through the Reserve Bank of India. The data for the two most recent quarters are compiled and released through the Ministry of Finance. External debt is a combination of total long term debt and total short term debt.
Debt in Recent Years
External Debt in India stood at US$570 billion as of the close of March 2021. It grew by US$11.6 billion and 11.6 billion over the amount in March 2020. The debt-to-GDP ratio grew to 21.1 per cent at the close of March 2021, up from 20.6 per cent one year ago.
The foreign currency reserves grew to more than US $579 billion by the close of March 2021 compared to US $474 billion by March 2020. Therefore, the foreign reserve of currency as a percentage of debt externalised increased to 101.1 per cent at the end of March 2021 compared to 84.9 per cent at the end of March 2020.
Total Long Term Debt
Total Long Term Debt (more than one year before maturity) is the most significant part of India’s External Debt. India divides its long-term foreign debt into seven different heads. The external debt column records the value of the external debt stocks at the end of March 2021.
Multilateral
Multilateral debt refers to the amount India owes international financial institutions like the Asian Development Bank (ADB) as well as the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) and IBRD, the International Fund for Agricultural Development (IFAD) and many others. In addition, borrowing directly from the International Monetary Fund (IMF) is not part of the multilateral debt and is classified as separate by the IMF head.
Bilateral
Bilateral debt is the amount India pays foreign governments. On 31 March 2021, India had a bilateral total debt total of $31.0 billion.
India’s National Government Debt
- In India, the National Government’s long term Debt was 1,726.3 USD billion in December 2021 compared to 1,695.2 USD billion in the preceding quarter
- India National Government Debt data is updated each quarter and is accessible from December 1998 until December 2021
- The data hit a record high at 1,726.3 USD bn in Dec 2021, and the lowest record in the range of 232.8 USD bn in Dec 1998
- According to the most recent report, India’s Consolidated Fiscal Balance showed a deficit of 6.0 per cent of its nominal GDP in December 2020
- The country’s government’s debt represented 56.6 per cent of its nominal GDP in December 2020
- India’s Nominal GDP was 739.3 USD bn in Dec 2020
Short Term Debt
There are generally two types of debt, also known as liabilities, that a company accumulates: operating and financing. The first is the result of actions taken to raise funds for the growth of the business, while the latter is the result of obligations that arise from regular business activities.
Short-term debt refers to the amount of a loan payable to the lender in one year. Other forms of short-term debt include commercial papers, lines of credit, and lease obligations. The balance of the account for short-term debt is a significant factor to consider when assessing the financial viability of any company. Suppose the ratio in this account to the total amount of liquid assets is excessive. In that case, the analyst could conclude that the business faces a liquidity crisis and may reduce its credit ratings.
Most financing debts are considered long-term debt because it has a maturity date more significant than 12 months. It is typically listed in the balance sheet’s current liabilities’ section of total liabilities.
Operating debt results from the main activities essential to running a company, for example, accounts payable. It is expected to be settled within 12 months or during the current cycle of its accrual, also known as short-term debt. It typically consists of short-term bank loans or commercial paper issued by a business.
Conclusion
If the government is in long term debt and can pay this debt by creating more currency, this money’s value will go down. If the economy expands but debt isn’t an issue. Problem. India’s finance minister Nirmala Sitharaman believes that the market is expected to grow. Borrowing more significant amounts of money will mean you’ll need to repay it in the future. This isn’t the first time India has been in this external debt situation. However, should there be unavoidable events such as an outbreak of another disease or war that could be a possibility shortly, the growth could suffer a setback, which is when debt becomes problematic. However, most experts think that the chances of another event are meagre.
