Monday, July 3, 2017

India's external debt shrinks by 2.1%

Jul 04 2017 : The Times of India (Chennai)
India's external debt shrinks by 2.1%

Commercial Borrowings Drop To $173 Billion
Flush with liquidity from domestic sources, India's external debt as of March 31, 2016 declined 2.1% to $471.9 billion compared to the previous. The decline in external debt would have been steeper -but for a valuation loss of $1.5 billion due to depreciation of the US dollar versus the Indian rupee.With a tepid market for funds, commercial borrowings declined 4.2% and NRI deposits 7.9%.Commercial borrowings fell to $173.1 billion from $180.7 billion in the year-ago, while NRI deposits fell 7.9% to $116.9 billion from $126.9 billion.
“There are multiple reasons for this. Banks currently are focusing on winding down their external assets and consolidating their balance sheets. When it comes to their corporate loan book they are not looking at credit expansion as much as asset quality improvement,“ said Dhananjay Sinha, head of research, economist & strategist, institutional equities at Emkay Global Financial Services Ltd.
But that doesn't mean that all outside interest in Indian markets is low, said Sinha. “FDI inflows for instance have hit an all-time high of $60.1 billion in 2016-17; so the re is definitely interest in some sectors like consumer industry , consumer-led technology companies. But debt flows have been considerably lower,“ he said.
India's current account deficit (CAD), which narrowed to 0.7% of GDP from 1.1% the previous year also had a role to play. “The decline in current account deficit apart from the contraction in trade deficit; also stems from the fall in commodity prices. Going forward that should reverse, when it does we can expect some hardening in commodity prices.NRI deposit flows might also come -which should push external debt up,“ said Sinha.
Other significant indicators such as trade credit, and rupee debt have also fallen.Trade credit, which is a major source of short-term lo ans for a majority of export businesses in India, fell 9% to $9.7 billion from last year.For close on three years now, trade credit has been falling from a high of $15 billion in 2013-14, to $12.6 billion in 201415, to $10.6 billion in 2015-16.
India's exports despite increasing 4.7% y-o-y to $274.65 billion for FY2016-17, saw its slowest growth in April. Exports had been falling for nearly 18 months from Dec 2014Sept 2016 on slowing global demand and soft oil prices. Despite, reversing this negative trend in June, exports again fell in July , August.
Rupee debt fell to $1.2 billion from $1.3 billion in the year-ago. “The rupee bond market has been shrinking since 2002 when it reached its high of $2 billion. The market has been steadily contracting,“ added Sinha.

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