DIMENSIONS OF EXTERNAL DEBT CRISIS AND INDIA

ORIGIN OF EXTERNAL DEBT CRISIS 

External debt refers to that portion of the country's debt which  borrowed from abroad comprising of foreign exchange from lenders including commercial banks, governments or global financial institutions and multilateral agencies. Foreign debt can be borrowed from government, corportions or global financial institutions. The magnitude of external debt and debt servicing requirements pose a serious matter of concern particularly to less developed countries. This was more alarming when in  the aftermath of first oil price hike of 1973 caused large accumulated import bill for non oil developing countries and the beneficiaries from rapid inflows of petro dollars which surged their earnings in commercial banks and other financial institutions.Flush with foreign currency they started to lend  the money for the development of much needed  less developed countries.After 1979 they found that the huge accumulated external debt became a real burden to countries like Mexico, Argentina Brazil and Chile who were on the verge of defaulting the debt they have already borrowed and debt service payments they have to make which led to "international debt crisis".However  intervention by multilateral agencies like IMF,World Bank, ( of course with their conditionalities and plans),friendly countries and international commercial banks had intervened to lighten their  burden of external debt and debt service payments. As far as India is concerned export of manpower and consequent foreign remittances during those years acted  as a safety valve and effectively insulated  Indian economy  against external debt crisis. 

GLOBAL EXTERNAL DEBT POSITION IN 2024.

According to World bank's International Debt Report 2024 Debt servicing costs of Low  and Middle Income Countries (LMICs) excluding China recorded all time high in 2023 at  US $ 8.8trillion. External debt  including that of  China increased over 19.7 percent of the previous year and doubled the amount compared to one decade ago.  Impact of Covid19 made substantial changes in the composition of LMICS international debt portfolio  wherein the borrowings from private creditors declined and that of multilateral creditors like IMF,World Bank and regional development banks share increased largely due to stepping up of emergency credit and balance of Payments of support in times of crisis . As per World Bank data India had US$ 646.8 billion external debt  with interest payment obligation of $22.5  billion in 2023, compared to $ 607.1 billion for Brazil and $2.4 trillion for China with $ 49.8 billion interest burden in 2023.Recent data showed that as on March 2024 USA's external debt was $ 26.5 trillion  accounting for 90.74% of GDP and 18.92% of total wealth. Most importantly UK's external debt of  $9.79 trillion as on June 2024 accounted for 272.77% of GDP and 61.27%of total wealth. Similarly Netherlands total external debt recorded as high as $ 4.14 trillion accounting for 340.12% of GDP and 85.11% of total wealth. Luxembourg with $ 3.72 trillion account for highest 4155%of GDP and 1267.43 % of total wealth.Canada's external debt $ 3.12 trillion accounting for 140.98% of GDP and and 27.72% of total wealth. while India's external debt account for $ 682 billion and 164.6% of GDP and 4.2% of total wealth. China recorded exceptionally strong external debt position  total  debt amounting to $ 2.55 trillion which accounted  for only just 13.93 % of GDP and 3.01% of total wealth

DIMENSIONS OF INDIA'S EXTERNAL DEBT .

India's total external debt increased from $290.428  in 2010 to $ 564.979 in 2020,$ 615.516  billion in 2022 and $ 646.787 in 2023.About 51% of our external debt is contributed by the private sector with bond holders accounting for 35% and other commercial debt 16%. One third of government's external debt is provided by multilateral agencies like Asian Development Bank (11%).World Bank (11%) and other multilateral agencies (11%).Total Bilateral credit was 16% where Japan contributed 11%,Russia and Germany 2% each  and other bilateral loan remaining 1%.As per Government of  India's external debt report March 2024 as on December end 2023 India's external debt recorded was $648.2 billion. External debt GDP ratio stood at 18.8%.,long term debt with maturity of one year and above was $521.9 billion (80.51%) and the short term debt  with less than one year maturity constituted 19.5% only. Historically as expected US $ denominated debt remained  very high at 54.2% of India's external debt followed by in Indian Rupee (30.7%),Japanese Yen 5.9%, IMF's SDR 5.6% and Euro 2.9 %.India's key external debt indicators showed that the ratio of external debt to GDP was 28.3 in 1991 decreased to 22.1 in 2001,18.6 in 2011,21.1 in 2021 and 18.8 in 2023.Debt service ratio in the Same period were 35.3  in 1991,16.6 in 2001, in 2011 only4.4, in 2021 8.2 and in 2023 6.8.Ratio of foreign exchange reserves to total debt varied between 7 in 1991,138 in 2008,95.9 in 2011,100.6 in 2021 and 96 in 2023.Ratio of concessional debt to total debt was maximum of 45.9 in 1991,8.6 in 20st 01,14,9 in 2011,9.0 in 2021,and 7.7 in 2023.Similarly when the economy was liberalised in 1991 the exchange rate was 1$ equal to rupees 17.01 to one dollar in 1991 increased to 44.31 in 2000,46.02 in 2010,74.31 in 2020,75.45 in 2021,81.62 in 2022,84.31 November 2024 and rupees 84.48 per dollar as on 27th December 2024..

At the policy level India  adopted flexible inflation targeting (FIT) framework in 2015.RBI introduced the automatic sweep in sweep out ASISO facility in August 2020 with greater flexibility in managing day end cash reserve ratio (CRR) balances. This facility enabled banks to pre set specific amount or range to maintain the balance. Any fluctuation (shortfall or excess) in  balance maintained by banks would automatically trigger maginal standing   facility,(MSF), or Standing deposit facility (SDF)/reverse repo  bids under the ASISO facility. Prudent management of external debt requires appropriate strategy  for capital flows, debt flows, trade flows, commercial borrowings and concessional finance and foreign aid etc.Infrastructre development, logistical support and supply chain resilience that can boost exports income.More over as per World Bank report India has got the largest ever share of global workers remittances of 14.3% accounting for $ 129.1 billion in 2024.Studies have shown that since 2008 India consistently remained as the world's largest recipient of global workers remittances.However despite huge foreign exchange reserves rupee dollar exchange rate is depreciating forcing RBI intervention for  stabilsing rupee dollar exchange rate. Few options are suggested by  experts. 1. Allow rupee to stabilise automatically without intervention 2.Progressively reduce the transactions in US dollar and substitute transactions with other currencies and  local currency.

CONCLUSION 

 In short even though India's external debt position is not alarming and safety Valves like foreign remittances and service exports are favourable, emerging geopolitical tensions reemergence of protectionist tendencies in global economy especially impending tight immigration and economic policies by USA, aggravating US China trade war,absence of a sound  trade dispute settlement system, rising external commercial borrowings and depreciation of Indian rupee are matters of great  concern in the external sector of the Indian economy.