Economy
India’s external debt stock stood at US$390 billion at end-March 2013
The rise in external debt of 12.9% is mainly due to increase in short-term debt, commercial borrowings and non-resident Indian deposits, says a status report from the Finance Ministry
 
The level of India’s external debt (at US$390 billion) is on a rising trend with the elevated level of current account deficit and hence overall external financing requirements. With rising debt flows, deceleration in GDP  growth  and  depreciating  rupee,  key  external  debt  indicators  witnessed  some  deterioration as  at  end-March  2013  as  compared  to  end-March  2012. This is according to a status report on India’s external debt published by the department of Economic Affairs, Ministry of Finance.
 
However,  debt  service  ratio,  measured by the proportion of total debt service payments to current receipts (minus official transfers) of balance  of  payments,  at  end-March  2013  showed  some  improvement  over  end-March  2012, coming down from 6.0 to 5.9 and India’s external debt has remained within manageable limits as indicated by  external  debt-GDP  ratio  of  21.2%  during  2012-13, the report added.
 
India’s external debt position in recent years is given below:
 
 
At end-March 2013, India’s external debt stock stood at US$390.0 billion, increasing by 12.9% over the end-March 2012 level of US$ 345.5 billion. The rise is mainly due to increase in short-term debt, commercial borrowings and non-resident Indian deposits, the status report stated.
 
The  share  of  commercial  borrowings  in  total  external  debt  stock  stood  at  31.0%  at  end-March  2013,  followed  by  short-term  debt  (24.8%),  NRI  deposits  (18.2%)  and multilateral debt (13.2%). Government  (sovereign)  external  debt  stood  at  US$  81.7  billion  at  end-March  2013  vis-à-vis US$ 81.9 billion at end-March 2012.  The share of government external debt in total external debt was lower at 20.9% at end-March 2013 as compared to 23.7% at end-March 2012.
 
The International Debt Statistics 2013 of the World Bank, which contains external debt numbers for 2011,  shows  that  India’s position was  fourth,  in  terms  of  absolute  debt  stock  amongst  the  top twenty  developing  debtor  countries, the report concluded.

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No sustainable turnaround in BoP for 6 months
Weak growth and poor flows, both equity and overseas borrowing by corporates, will keep up the pressure on balance of payments
 
India’s trade deficit narrowed to US$10.9bn in August (Nomura: US$8.5bn) from US$12.3bn in July due to strong exports. Exports rose 13% y-o-y (year-on-year) in August, following 11.6% growth in July, led by improving global demand. Even as global demand improved, weak domestic demand and the clampdown on gold imports kept imports under check, contracting by 0.7% y-o-y in August compared with a decline of 6.2% in July. Within imports, gold imports moderated sharply to US$0.65bn from US$2.2bn in July; non-oil imports contracted 10.4% y-o-y versus a decline of 5.3% in July; while oil imports rose sharply to 17.9% y-o-y from - 8%. Hence, higher oil imports (due to high oil prices) largely offset the benefit of lower gold imports and slowing domestic demand.
 
Even as the macro backdrop appears to be stabilizing, it is not expected that there will be a sustainable turnaround in trade deficit and balance of payments. Continuing concerns over the growth outlook, rising credit risks, deteriorating bank asset quality and worsening fiscal pressures suggest that risks remain skewed to the downside over the next six months. This is according to a research note by Nomura Financial Advisory.
 
According to Craig Chan, Nomura’s head of Asian FX strategy, the recent measures announced (on FCNR(B) deposits and the dollar swap window for oil companies) provide a near-term respite. But Nomura remains cautious on a sustained rally in the Indian rupee because of the continued negative fundamentals, mainly from weak growth.
 
Nomura’s research note adds that it would expect weak growth to result in a slowdown in growth-sensitive flows, both equity and overseas borrowing by corporates, which can offset inflows through other routes. Hence, it expects the balance-of-payment pressure to persist.

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Goldman Sachs cuts India FY14 GDP to 4%; sees rupee at 72

India and most of the Southeast Asian countries are likely to see difficult external funding conditions as markets are anticipating US Federal Reserve tapering, says Goldman Sachs

Goldman Sachs has lowered India’s growth forecast for the current financial year to 4% from 6% earlier and is expecting the rupee to touch 72 against the US dollar over next six months.

 

“For India, we have cut our FY14 GDP growth forecast to 4.0%, from 6.0% earlier, and our FY15 forecast to 5.4% from 6.8% previously,” Goldman Sachs said in a research note.

 

According to the brokerage, India and most of the Southeast Asian countries are likely to see difficult external funding conditions as markets are anticipating US Federal Reserve tapering and eventual exit from unconventional monetary policies.

 

In the near term, Goldman Sachs sees risks as the economy is likely to need an adjustment in the current account and fiscal balances, and says it may require below-potential growth for several more quarters to reduce inflation, before we can see an economic recovery.

 

The report further added that not only has data come in worse-than-expected in Q2 2013, the external funding pressure since early May was the major driving factor behind the GDP downgrade.

 

According to official figures, the country’s economic growth in the April-June quarter slid to 4.4%, the lowest in the past several years, pulled down by drop in mining and manufacturing output.

 

Goldman Sachs has lowered its growth forecasts for India followed by Indonesia, Thailand and Malaysia, it said.

 

Meanwhile, the global broking major has also lowered its rupee forecast, and sees further real depreciation over 3 to 6 months given the challenging external funding environment and the slowdown in GDP growth.

 

“We change our 3, 6, and 12-month USD/INR forecasts to 70, 72, and 70 (from 60 flat) respectively,” the report said.

 

The rupee had touched an all-time intra-day low of 68.85 to a dollar on 28th August and is currently hovering around the 67 per US dollar mark in highly volatile trade.

 

“We see further real depreciation over three and six months given the challenging external funding environment and the slowdown in GDP growth. Over 12 months, we expect some stabilisation, with the removal of election uncertainty in March-April likely to help sentiment, and adjustment in the current account in progress,” Goldman Sachs said.

 

Notwithstanding the fact that the global brokerage has downgraded its India forecast significantly, it remains optimistic about its long-term potential.

 

“We continue to believe that a rising middle class, favourable demographics, need for investments, especially on infrastructure, and productivity catch-up across a broad swathe of sectors can drive growth over the medium term,” it said.

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COMMENTS

VGANESAN

4 years ago

goldman sachs and other FII are not understanding the indian market even after 20 years. Local DII ARE UNDERSTANDING OUR MAARKET very well.Our economy can grow bare minimum of 5 percent for several decades.Harshad mehta scam run in crores in thousand.But today the scams run in crores in lakhs.Despit all this our economy is growing with selfish politicians. I am suggestin to invest in good companies after research wiil reward manifold in the decade .

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