Foreign debt up


India’s external debt has soared to $132.1 billion as on June 2006, an increase of $6.9 billion from $125.2 billion at the end of March, says Reserve Bank of India data. The rise is due to huge corporate borrowings overseas by way of external commercial borrowing and foreign currency convertible bonds, reflecting strong domestic, investment activity.

Capital inflow through overseas borrowings is expected to remain robust on account of the cost advantage corporate companies enjoy. Indian corporate companies with an AAA rating, even after building in the hedge cost, end up commanding a cost advantage of around 70-80 basis points.

NRI deposits flow has also risen by 1.5% to $ 35.65 billion. The flow of NRI deposits is due to the high interest rate. It has also driven by the strong growth in the US and West Asian income. It is also likely that a pick up in foreign direct investment in sectors like auto, infrastructure and telecom may take place.

The currency composition of India’s external debt as of end-June 2006 reveals that the dollar continues to be the major currency, accounting for 46.1% of total external debt stock. There was a prepayment of external bilateral debt amounting to $59.2 million during April-June 2006.

The share of debt with lower interest in total external debt declined to 30.2% as of end June 2006 from 31.5% as of end March 2006. This indicates a gradual increase in India’s foreign private debt in India’s debt in India’s external debt stock.

Trade deficit up on rising crude prices

India’s current account deficit for the April-June quarter rose to $6.099 billion. This increase is largely driven by a 22.6% rise in invisible receipts, which include earnings from travel, business, professional services and remittances.

With India’s imports outstripping the pace of export growth, trade deficit widened to $18.5 billion in the April-June period, compared with $13.6 billion in the first quarter of the previous fiscal. High oil import costs continue to have a bearing on the deficit. The balance of payments for the first quarter reported a surplus of $6.38 billion.