India's debt situation focuses on the total amount of external debts taken by the nation in a particular year, its repayments as well as the outstanding debt amounts, if any.
India’s External Debt Situation: 2009
India’s external debt, as of March 2009, was US$229.9 billion (22.0 % of GDP), recording an increase of US$5.3 billion or 2.4 % over 2008 mainly due to the increase in trade credits. According to an international comparison of external debt of the twenty most indebted countries, India was the fifth most indebted country in 2007. By way of composition of external debt, the share of commercial borrowings was the highest at 27.3% in March 2009, followed by short-term debt (21.5%), NRI deposits (18.1%t) and multilateral debt (17.%).
The debt service ratio has declined steadily over the years, standing at 4.6% in March 2009. By not taking into account the effects of the appreciation of the US dollar against other major currencies and the Indian rupee, the stock of external debt would have increased by US$18.7 billion, as compared to the stock in March 2008. The share of short-term debt in the total debt increased to 21.5% in March 2009, from 20.9% in March 2008, primarily on account of a rise in short-term trade credits.
Based on residual maturity, the short-term debt accounted for 40.6% of the total external debt on March 2009. The ratio of short-term debt to foreign exchange reserves stood at 19.6% in March 2009, higher than the 15.2% in March 2008. The US dollar continued as the dominant currency, accounting for 57.1% of the total external debt stock in March 2009. India’s foreign exchange reserves provided a cover of 109.6% to the external debt stock at the end of March 2009, as compared to 137.9% at the end of March 2008.
Indian Debt Rating and 2010 Outlook
India’s credit rating outlook was raised to ‘stable’ from ‘negative’ by Standard & Poor’s based on optimism that faster growth in Asia’s third-largest economy will help the government cut its budget deficit. The Indian Finance Minister has promised to cut the deficit to 5.5% of the GDP in 2010, from 6.9% of the GDP in 2009. The government also plans to cut its debt to 68% of the GDP by 2015, from its current levels of 80%.