External Commercial borrowings dip 64% in 2008-09

External Commercial borrowings dip 64% in 2008-09 New Delhi: Funds raised by India Inc as external commercial borrowings declined by 64 percent during 2008-09 on account of tight liquidity in the global markets triggered by collapse of Lehman Brothers.

The net ECB flows in the country declined sharply to USD 8.2 billion in 2008-09 against USD 22.6 billion in 2007-08, the Finance Ministry said in its report 'India's External Debt: A Status Report'.

ECBs funds, the report said also became expensive on account of tight liquidity conditions in the international financial markets, it said.

Short-term trade credit flows (net) turned negative at USD 5.8 billion as compared with an inflow of USD 17.2 billion a year ago.

Banking capital, excluding NRI deposits also recorded an outflow of USD 7.7 billion in 2008-09 while there was a net inflow of USD 11.6 billion under this head in 2007-08.

At the same time, India's external debt rose marginally by 2.4 percent at USD 230 billion during 2008-09 against 31 percent in the previous fiscal.

External debt stock recorded an increase of USD 5.3 billion (2.4 percent) during 2008-09 as compared with an increase of USD 53.2 billion (31.1 percent) during 2007-08, the report said.

"The lower rate of rise in India's external debt during 2008-09 was on account of valuation effect attributed to appreciation of the US dollar vis-à-vis other major international currencies, and moderation in debt components, particularly commercial borrowings and short-term trade credits reflecting the impact of tightness in international capital markets due to the crisis," it said.

The government (Sovereign) external debt declined to USD 54.9 billion as at end-March 2009 from USD 56.9 billion at end-March 2008.

Its share in total external debt was lower at 23.9 percent as at end-March 2009 (25.4 percent at end-March 2008), it said, adding, government guaranteed external debt was marginally up to USD 6.8 billion at end-March 2009 (USD 6.6 billion at end-March 2008).

The government debt and government guaranteed debt aggregated to USD 61.7 billion at end-March 2009, accounting for 26.8 percent of total external debt, it said.

The report also noted that depreciation in the Rupee exchange rate against major international currencies in 2008-09 resulted in higher debt service payments in Rupee terms.

A picture of India's external debt compared with other developing countries for the year 2007, as brought out by the World Bank’s Global Development Finance, 2009 indicates that India was the fifth most indebted country amongst the top twenty debtor countries of the developing world in 2007.

In terms of foreign exchange cover of external debt, the report said, India’s position was the fifth highest at 125.2 percent after China, Malaysia, Thailand and Russia.

Outlining the policy initiative undertaken during 2008-09, it said significant policy initiatives were taken relating to external commercial borrowings, short-term trade credits and non-resident deposits.

The policy measures relating to external commercial borrowings indicated a move towards liberalisation in terms of expanding the list of eligible borrowers, easing all-in-cost ceilings, relaxations in end-use stipulations, etc, it said.

The all-in-cost ceiling applicable to short-term trade credits was raised, taking into account higher cost of funds in international capital markets. The interest rates on NRI deposits were also raised to counter the effect of global financial crisis on debt flows to India, it said.

The ceilings on investment of FIIs in government securities and corporate bonds were also enhanced during the year. These measures were possible due to comfortable external debt position of the country, it added.

Bureau Report