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NRI deposits push up external debt
Mumbai, Apr 08: The government has prepaid a slice of its foreign debt and several corporates have also retired their external commercial borrowings, but India`s external debt rose in 2003, thanks to a jump in NRI deposits. NRI deposits with banks in India have singularly contributed to the rise in the country`s external debt.
Mumbai, Apr 08: The government has prepaid a slice of its foreign debt and several corporates have also retired their external commercial borrowings, but India’s external debt rose in 2003, thanks to a jump in NRI deposits. NRI deposits with banks in India have singularly contributed to the rise in the country’s external debt.
According to the latest figures released by the Ministry of Finance for the quarter ending December 2003, out of the country’s total external debt amounting to $112,105 million, NRI deposits amounted to $28,960 million.Among the other components, while $4 billion ($2 billion each of multilateral debt and external commercial borrowings) of debt was repaid, NRI deposits rose $7.1 billion during the year. Result: Total external debt went up $6.9 billion during the calendar year.
Significantly, NRI deposits unlike NRI remittances comprise a part of external debt owing to their repatriable nature. But remittances which form a part of current receipts are permanent.
Besides, the repatriation of the principal, there is a significant amount of interest outgo as well that the country has to bear. However, interest rate on fresh inflows were capped initially in July to 150 basis points over Libor to curb any interest rate arbitraging opportunities arising out of the interest rate differential in the global and domestic economy. This was later capped to 25 bps over Libor by early November for NRE rupee deposits and 25 bps below Libor for FCNR dollar deposits with banks.
Though interest arbitrage opportunity has come down significantly, under the NRERA — non resident external (rupee account) depositors keeping funds unhedged still benefit out of gaining rupee. During the year, the rupee has gained close to 8%. In addition to the interest rate that the depositor earns, he also gains on conversion of the deposit at the time of repatriation. The gaining rupee, has pushed up the share of rupee debt (expressed in dollar terms). The share of rupee debt has gone up from 11.9% in March 2002, to 17.3% in March 2003 and further to 21.4% in March 2004. While the share of dollar loans in external debt has fallen from 54.3% in end March ‘02, to 41.6% in March 2003. Euro-denominated loans during the period went up from 5.7% to 6.4%. However, there is no evidence of swapping dollar-euro loans. Bureau Report
Significantly, NRI deposits unlike NRI remittances comprise a part of external debt owing to their repatriable nature. But remittances which form a part of current receipts are permanent.
Besides, the repatriation of the principal, there is a significant amount of interest outgo as well that the country has to bear. However, interest rate on fresh inflows were capped initially in July to 150 basis points over Libor to curb any interest rate arbitraging opportunities arising out of the interest rate differential in the global and domestic economy. This was later capped to 25 bps over Libor by early November for NRE rupee deposits and 25 bps below Libor for FCNR dollar deposits with banks.
Though interest arbitrage opportunity has come down significantly, under the NRERA — non resident external (rupee account) depositors keeping funds unhedged still benefit out of gaining rupee. During the year, the rupee has gained close to 8%. In addition to the interest rate that the depositor earns, he also gains on conversion of the deposit at the time of repatriation. The gaining rupee, has pushed up the share of rupee debt (expressed in dollar terms). The share of rupee debt has gone up from 11.9% in March 2002, to 17.3% in March 2003 and further to 21.4% in March 2004. While the share of dollar loans in external debt has fallen from 54.3% in end March ‘02, to 41.6% in March 2003. Euro-denominated loans during the period went up from 5.7% to 6.4%. However, there is no evidence of swapping dollar-euro loans. Bureau Report