External debt in comfort zone and better than many others, says FM Sitharaman

New Delhi: India’s external debt-to-GDP ratio at 18.7%, its debt service ratio at 6.7% and foreign exchange reserves-to-external debt ratio at 97.4% are “within the comfort zone” and way better than many middle-income countries, finance minister Nirmala Sitharaman said.

In a foreword to a status report released by the finance ministry, Sitharaman underscored that India’s external debt “remains sustainable and prudently managed”.

The country’s external debt rose 6.4% from a year before to touch $663.8 billion as of March 2024, according to the status report, firmed up by the department of economic affairs.

Indian rupee-denominated loan, accounting for 31.5% of the total external debt, also “provides an element of comfort from a currency risk standpoint”, the minister said.

“The stability of the total external debt is further enhanced by the fact that the long-term debt constitutes a significant proportion of the debt, and the short-term debt is essentially incurred to finance imports,” Sitharaman added.

Globally, total external debt stood at $102.4 trillion as of December 2023, and comparative data for India was $646.1-billion, placing the country at the 24″‘ position worldwide.”Thus, India’s external debt stock is low from a cross-country perspective,” she said.Moreover, India’s share of long-term debt in total external debt as of December 2023 was 80.8%. This “signifies its low dependence on vulnerable short-term debt”, Sitharaman said. This ratio was comfortably way above the global average of 59.8%, she added.

“India’s external debt position is better than most of the Low and Middle Income Countries as measured by select vulnerability indicators, such as share of short-term debt in total external debt, external debt to GNI (gross national income), forex reserves to external debt and external debt to exports,” she added.