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The external debt position of the country has been taking serious turn with the growing increase in the volume of debt, particularly during 1980s. In terms of rupee, total external debt of the country increased from Rs 14,520 crore in 1980 to Rs 1,30,199 crore in 1990 and then to Rs 3,15,435 crore in 1996.
Moreover, the share of external assistance to external debt has been declining gradually and the share of commercial borrowing and NRI deposits has been increasing considerably. The share of commercial borrowing and NRI deposits in total debt increased from 22.5 per cent in 1980-81 to 26.0 per cent in 1995-96.
“The increasing share of commercial borrowings coupled with the decline in the grant element in external assistance has raised the average cost of external debt over time.”
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Thus this change in the pattern of debt has added to the debt servicing burden of the country.
Arun Ghosh rightly observed that “It is the increasing payment of interest on external debt arising from increasing total debt liability, which has added to the need for external borrowing. At the same time the continuing gap between import payment and export earnings has made it necessary to keep on increasing more and more debt.”
Thus the growing payment deficits and external borrowing after the mid-1980s coincided with a deterioration in the quality of external financing resulting in shortening of maturities and increasing the average rate of interest. All these are reflected in the increase in the volume of total debt and increasing problem of debt servicing for the country.
Table gives a clear picture about the growing problem of India’s external debt and debt servicing since 1980-81.
Table 16.8 reveals that in US dollar terms total external outstanding debt of India rose from $ 23.50 billion in 1980-81 to $ 83.9 billion in 1990-91 and then to 442.26 billion at the end of 2013-2014. In terms of rupees, the external debt also rose significally from Rs 194.70 billion in 1980-81 to Rs 1638.50 billion in 1990-91 and then to Rs 26,607.40 billion at the end of 2013-14.
Total debt service payment also rose from $ 1.41 billion in 1980-81 to $ 12.86 billion in 2001-2002 and in rupee terms the same payment rose consequently from Rs 11.16 billion in 1980-81 to Rs 612.96 billion in 2001-02.
As a proportion of GDP, the external debt rose from 13.7 per cent in 1980-81 to 28.0 per cent in 1990- 91 and then it subsequently declined to 23.7 per cent in 2013-2014. Again the share of debt service in total current receipts increased from 9.3 per cent in 1980-81 to 35.3 per cent in 1990-91 and then gradually declined to 5.9 per cent in 2013-2014.
India’s external debt burden continues to grow further in 2013-14. Thus, total external debt of India was at US $ 426 billion, including the government’s debt of US $ 76.4 billion at the end December, 2013. The share of concessional debt in total external debt, which was steady at around 45 per cent during the first half of the 1990s, declined to 38.5 per cent at the end-March 2000.
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The share now stood at 37.5 per cent at end-September 2000. Thus India’s share of concessional debt continues to be high by international standards. According to World Bank’s Global Development Finance, 2002, India has the highest share of concessional debt among the top 15 debtor countries of the world.
World Bank classifies countries into severely, moderately and less indebted categories according to the ratio of Present Value (PV) of Debt to Export of goods and services and PV to GNP. Although the World Bank Categories India as a moderately indebted country its indebtedness position considerably improved during the 1990s.
India was close to severely indebted category in 1991 whereas in 1991 it was close to less indebted benchmark. The present trend of high export growth is expected to make India a less indebted country in near future.
Moreover, short-term debt (i.e. debt with an original maturity of up to one year), which stands at immediate danger for indebted country, declined from US $ 8.54 billion at end-March 1991 to US $ 4.04 billion at end-March 2000, showing a decline in the share of short term to total debt from 10.2 per cent in 1991 to 4.1 per cent at end-March 2000.
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In respect of improvement of indebted position of the country, the Economic Survey, 2000-2001, observed that “The improvement in India’s external indebtedness position since early 1990s is due to a conscious debt management policy followed by the Government that focuses on high growth rate of exports, keeping the maturity structure as well as the total commercial debt under manageable limits, restricting short-term debt and encouraging non-debt creating flows.”
Moreover, on debt monitoring and management front, a number of new initiatives have also been undertaken which would further consolidate the gains already made. This includes steps for more effective monitoring and computerization of NRI, and Short-term debt data and a modelling exercise to develop currency and interest rate benchmarks for sovereign external debt of the country.
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