India’s external debt at the end of March 2004 was US $ 112.6 billion (Annex I). The major highlights of the evolution of external debt during 2003-04 are set out below:

• India’s total external debt stock increased by US $ 7.7 billion (7.4 per cent) by end-March 2004.

• The major portion of the increase in external debt may be attributed to valuation changes on account of the depreciation of the US dollar against other major international currencies. Adjusted for valuation effects, the stock of external debt at the end of March 2004 was broadly at the March 2003 level. In fact, measured in rupees, the stock of debt recorded a decline of 1.9 per cent over March 2003 (Annex I).

• In terms of components, NRI deposits were the key driver of the increase in external debt during 2003-04.
• This essentially reflects the flow of the discontinued Non-Resident Non-Repatriable Rupee Deposit [NR(NR)RD] scheme into the repatriable Non-Resident External (NRE) scheme. Deposits under the NR(NR)RD scheme were not included earlier as a component of the stock of external debt given their non-repatriable character. Accordingly, discontinued NRNR deposits have begun to be reckoned under the external debt stock.
  
  
  

• Among the other debt components, bilateral debt and short-term trade credits recorded an increase.

• Increase in the short-term trade credit reflects a pick up in import demand.
• There is a compositional shift in Government borrowing within multilateral sources, in favour of highly concessional IDA loans along with pre-payment of high cost loans from IBRD and ADB.
• With the decline in securitised borrowing arising from bullet maturity of Resurgent India Bonds (RIBs) more than offsetting the increase in bank loans, commercial borrowings, which remained around the same level, also witnessed a compositional shift.

• Key indicators of external debt, viz.,

debt to GDP ratio, ratio of short-term to total debt and short- term debt to foreign exchange reserves have shown continuous improvement over the years. This healthy improvement continued in 2003-04.

• Concessional debt as a proportion to total debt remained stable at around 36.0 per cent during the last three years.

Indicators of Debt Sustainability (per cent)

• The debt service ratio increased to 18.3 per cent in 2003-04 from 15.1 per cent in 2002-03 mainly on account of redemption of RIBs amounting to US $ 5.2 billion and prepayments of multilateral and bilateral debt amounting to US $ 3.8 billion during 2003-04. Excluding these exceptional transactions, the debt-service ratio declined to 11.0 per cent in 2003-04.
• Foreign exchange reserves exceeded the stock of external debt outstanding as on March 31, 2004.