India’s external debt increased by $39.9 billion to $345.8 billion in 2011-12, according to the Reserve Bank of India.
The increase in debt is due to the considerable increase in commercial borrowings, short-term trade credits and rupee denominated non-resident Indian (NRI) deposits.
Large recourse to borrowings, particularly short-term borrowings, reflect widening financing needs and growing uncertainty in global financial markets as the situation in the Euro Zone continued to be fragile, said the RBI.
In 2010-11, the external debt had increased by $44.9 billion to $305.9 billion as at March-end 2011.
As at March-end 2012, the external debt-GDP ratio increased to 20 per cent, against 17.3 per cent as at March-end 2011. This ratio indicates the country's ability to pay back its debt.
India’s debt service ratio increased to 5.6 per cent in 2011-12 compared with 4.2 per cent in 2010-11. Debt service ratio is the ratio of debt service payments of a country to its export earnings.
In the external debt, the share of commercial borrowings stood at 30.2 per cent as at end-March 2012 followed by short-term debt (22.6 per cent), NRI deposits (16.9 per cent) and multilateral debt (14.6 per cent).
The ratio of short-term debt (residual maturity) to foreign exchange reserves at 50.1 per cent as at end- March 2012 was higher compared to 42.3 per cent as at end-March 2011.
India’s foreign exchange reserves provided a cover of 85.1 per cent to the external debt stock at the end of March 2012 as compared with 99.6 per cent as at end-March 2011. Commercial borrowings increased by $15.8 billion as at end-March 2012 as compared to an increase of $17.8 billion as at end-March 2011. Trade credits (both long-term and short-term) increased by $8 billion as at end-March 2012 as compared to $12.8 billion over the level at end-March 2011.
NRI deposits increased by $6.9 billion to $58.6 billion as at end-March 2012 over the level as at end-March 2011 primarily on account of increase in rupee denominated NRI deposits. This reflects the impact of deregulation of interest rates on these deposits in December 2011.