CAUSES OF EXTERNAL DEBT IN INDIA

India's external debt increased by USD 11.5 billion year-over-year to USD 610 billion as of the end of
Sept 2022, according to figures issued by the Reserve Bank of India.

❖ The ratio of India's external debt to gross domestic product increased to 19.2% at the end of
September 2022 from 21.2% a year earlier, according to data on India's External Debt.

❖ Recent increases in external debt are due to the influenza pandemic, which has imposed
considerable pressure on government budgets.

❖ In order to cover the shortfall generated by a decline in income collection during the
pandemic, the government issued dated securities totaling Rs. 3,46,000 crores in the June quarter,

The poor countries are faced not only with the problem of persistent
balance of payments deficit but also of falling export earnings, low
growth rate and lack of liquidity for financing their development
programmes. The complex situation in which they are placed has
landed them in the grips of international debt crisis of serious
dimensions.

Any default on the part of some of these indebted countries is likely

to engulf the entire international financial system in grave crisis or
even collapse.

The steep rise in external debt burden of the developing

countries since 1970’s is on account of the following
reasons:
(i) Aggravation of BOP deficit by oil crisis.

(ii) Persistent inflationary pressures.

(iii) Large scale lending by Western banks in the wake of conditions

of recession within the developed countries.

(iv) Limited productive use of resources.

(v) Low export earnings.

(vi) Decline in the flow of concessional assistance and consequent

greater reliance on costly commercial borrowing.

(vii) Deterioration in the terms of trade for primary producing

countries.

* The 2020 figure is revised estimate, 2021 is partially revised, and the 2022 figure is provisional.
* Figures are taken in end-March.
* Forex reserves to debt ratios are measured in the secondary axis.
Source: Reserve Bank of India

TABLE 1: Government and non-government external debt (US$ billion, unless indicated otherwise)

End-March

2019 2020 (R) 2021 (PR) 2022 (P)

A. Government Debt (I+II) 103.8 100.9 111.6 130.8

(As percentage of GDP) (3.8) (3.8) (4.1) (4.2)

I. External Debt on Govt. Acc. Under External Assistance 68.8 72.7 84.5 86.7

II. Other Govt. External Debt# 35.0 28.1 27.1 44.1

B. Non-government Debt 439.3 457.5 462.0 490.0

(As percentage of GDP) (16.1) (17.1) (17.1) (15.7)

I. Central Bank 0.2 0.2 0.2 0.1

II. Deposit-taking Corporations, except Central Bank 164.3 158.2 160.8 158.7

III. Other Financial Corporations 31.2 40.7 55.2 53.2

IV. Non-financial Corporations 226.4 235.7 220.7 250.2

V. Households & non-profit institutions serving households 0.0 0.0 0.0 0.0

VI. Direct Investment: Inter-company lending 17.1 22.7 25.2 27.7

C. Total Debt (A+B) 543.1 558.4 573.7 620.7

(As percentage of GDP) (19.9) (20.9) (21.2) (19.9)

* R = Revised, PR = Partially Revised, P = Provisional

# Other government external debt includes defence debt, investment in treasury

bills/government securities by FPIs, foreign central banks and international
institutions, and SDR allocations by the IMF.

Source: Reserve Bank of India