Forex reserves slips below external debt after 7 yrs: Finmin.

NEW DELHI: After a gap of seven years, India's foreign exchange reserve slipped below its total external debt during the quarter ended September 2010.

At the end of September quarter, India's external debt was USD 295.85 billion, exceeding the country's forex reserve by about USD 3 billion, says a finance ministry report.

India was one of the few economies, besides China , Russia , Malaysia and Thailand, which has been maintaining more forex reserves than its total external debt.

However, with spurt in external debt, especially in the quarter ended September 2010, the country's forex reserves fell below external debt, a position that it had maintained since 2003-04.

Driven by USD 22.94 billion increase during July- September 2010, the steepest rise in any quarter since March 2008, India's external debt soared to USD 295.85 billion. According to the finance ministry report, the country's forex reserves worked out to be 99 per cent of its debts at the end of September.

A decade after undergoing the worst forex crisis, India's foreign exchange reserves had for the first time exceeded the external debt in 2003-04. After remaining more than 100 per cent the ratio of forex reserve to total debt had been 138 per cent for the financial year 2008-09.

Quoting a World Bank report, the finance ministry said that India was the fifth most indebted country in 2008 in terms of stock of external debt.

The increase in India's external debt at end of September 2010 over March was mainly on account of higher commercial borrowings and short term debt, which together accounted for over 70 per cent of the total increase.

In the first half of the fiscal (April-September), the external commercial borrowings (ECB) rose by USD 10 billion to USD 82 billion. Also short term debt increased by USD 13 billion in the first half to USD 66 billion at the end of September.

"Strong domestic demand along with rising interest rate differentials led to higher net inflows of commercial borrowings," the ministry said.


Source : economictimes.indiatimes.com