📷 Image Credits: Moneycontrol
India has achieved a significant milestone, with its external debt ratio reaching a 13-year low of 18.7% in FY24. This improvement marks a decline from 19% in the previous year, showcasing a positive trend in the country’s economic stability. According to data released by the Reserve Bank of India on June 25, India added nearly $40 billion to its external debt during this period, bringing the total debt to $663.8 billion as of March 2024.
A key factor contributing to this positive development was the valuation effect resulting from the appreciation of the US dollar against major currencies such as the Indian rupee, yen, euro, and SDR. This effect amounted to $8.7 billion, offsetting what would have been a greater increase in external debt. Excluding the valuation effect, the external debt would have risen by $48.4 billion instead of $39.7 billion at the end of March 2024 compared to the previous year.
The composition of the debt landscape also saw noteworthy changes. While general government debt rose by 11.5% in March 2024 compared to the previous year, households and nonprofit institutions serving households experienced a decline of 16.5%. Additionally, other financial corporations witnessed a reduction of 11.8% in their debt over the same period.
Moreover, there was a notable reduction in the share of short-term debt in total external debt, dropping to 18.5% at the end of March 2024 from 20.6% in March 2023. Similarly, the ratio of short-term debt to foreign exchange reserves decreased to 19% by the end of March 2024.
Dollar-denominated debt remains the largest component of India’s external debt, accounting for 53.8% of the total. This is followed by rupee-denominated debt at around one-third, with the yen holding a 5.8% share. Loans continue to be the primary component of external debt, comprising 33.4% of the total, while currency and deposits make up 23.3%.
India’s debt servicing also exhibited an improvement during this period, rising to 6.7% from 5.3% in the previous year. Furthermore, the country’s foreign exchange to debt ratio improved to 97.4% in FY24, signaling a stronger financial position.
The recent revision of India’s outlook by S&P Global Ratings to stable indicates the possibility of a rating upgrade in the future if there is further improvement in general government debt. Currently rated ‘BBB-‘ by the agency, India’s economic progress is poised for continued growth and stability.
