The Hindu Business Line : India ranks 8th among Top 15 debtors

FOR a country that has over a hundred billion US dollars `tucked away in its coffers', it seems a waste of time to worry about the fact that it owed the rest of the world $112 billion at the end of December 2003.

But it needs to be kept in mind that our forex reserves are not in fact simply `tucked away'. About sixty per cent of it is invested abroad, to help us earn a living by investing money that would otherwise simply sit idle.

According to provisional RBI data, India's `net international investment position' in 2003 was minus $60 billion. That was the amount by which the country's total liabilities ($155 billion) exceeded its total assets ($95 billion).

Total assets were comprised mostly of `reserve assets' aggregating $76 billion, of which foreign exchange accounted for $72 billion. `Currency and deposits' with `monetary authorities', according to the provisional figures, added up to $45 billion, while the remaining $33 billion being with `banks'. Turning to the liabilities side, the largest single item was, once again, a rag-bag of `other investment' ($92 billion), two thirds of which ($61 billion) were `loans'. Direct investments ($31 billion) were comprised mostly of `equity capital and reinvestment earnings' ($29 billion) i.e. FDI and foreign portfolio investments in the Indian economy.

According to the Tenth Status Paper on India's External Debt (Ministry of Finance, June 2004), India owed $112 billion to the rest of the world at the end of December 2003.

Of the total external debt, multilateral and bilateral borrowings stood at $48 billion, $45 billion of which was Government debt. Short term debt accounted for less than five per cent of India's total external debt; and debt by `residual maturity of less than one year', a little more than 10 per cent.

We owed nothing at all to the IMF. Commercial borrowings, presumably by the private sector, aggregated $21 billion. Long-term NRI deposits, which increased by about $7billion in 2003, were higher at $30 billion .

In terms of indebtedness classification, the World Bank has categorised India as a `less indebted' country since 1999. Among the top 15 debtor countries of the world, India improved its rank from the third debtor, after Brazil and Mexico in 1991 to eighth in 2002, after Brazil, China, the Russian Federation, Mexico, Argentina, Indonesia and Turkey.

High foreign exchange reserves have allowed India to repay high-cost loans before they become due for payment, and shift to cheaper loans with a longer maturity. 1991, however, is a year best forgotten. Because of the crisis situation prevailing at that time, it is not a good base for comparing subsequent progress. The thing that really matters is that we are still eighth among the Top 15 debtor countries in the world.

According to the 2004 Status Paper, debt servicing as a percentage of current receipts was a little less than 16 per cent over 2002/03. This ratio had risen to as much as 18 per cent between April and December 2003, mainly because of redemptions of Resurgent India Bonds. Excluding these redemptions, the debt service ratio over 2002/03 was a more modest 11 per cent. In this particular case, NRIs were definitely not guilty.

However, given the gush of mush about the grant of dual citizenship, we ought to keep in mind that when push comes to shove NRI interests do not always coincide with ours. In 1990/91, for example, NRIs contributed a great deal to the crisis and panic that we were then in the midst of.

One last thing. Guarantees given by the central government for loans raised by and for its various ministries, aggregated about $38 billion. Actual as distinct from committed liabilities accounted for only about half this amount. But this `overhang' could lurk larger in the years to come.