Fri, 26th May 2017

Anirudh Sethi Report


Archives of “term debt” Tag

India’s external debt up 13% at $390 billion in 2012-13

 India’s external debt rose by almost 13 per cent to $390 billion in 2012-13, mainly due to an increase in short-term trade credit and external commercial borrowings amid a high current account deficit.

At the end of March 2013, India’s external debt stood at $390 billion, 12.9 per cent higher than $345.5 billion a year earlier, according to an official statement.

“The rise is mainly due to increase in short-term debt, commercial borrowings and non-resident Indian deposits,” the statement said.

The level of India’s external debt is on a rising trend with the elevated level of the current account deficit and the overall external financing requirements, it said. The current account deficit touched a record high of 4.8 per cent of GDP in 2012-13.

With rising debt flows, deceleration in GDP growth and a depreciating rupee, key external debt indicators witnessed some deterioration as at end-March 2013 as compared to end-March 2012, it said. Read More 

It’s the BoP, not just CAD

a5Much of the government’s emphasis over the past few weeks has been on controlling the current account deficit (CAD), whether by way of compressing gold imports through duty hikes or by trying to lower oil imports while providing incentives to boost exports. While the finance minister’s statement that he would keep the CAD to under $70 billion in FY14 was met with initial scepticism, the rapidly slowing economy—and the impact of the falling rupee in compressing non-gold non-oil imports—suggests this may well be a reality. But what is driving the rupee down is not just the CAD—indeed the CAD has been improving since June—but increased outflows on account of fears of the US taper and the economy doing badly. Between January and May, when due to less fears of the taper starting anytime soon, $19.3 billion of FII funds flowed in, but the rupee still slipped from 53.3 per dollar to 56.5. Between June and now, when $12.4 billion flowed out, the rupee naturally fell even more, to 66.01 currently. Read More 

Yashwant Sinha says Chidambaram is an “incompetent doctor”

The Opposition on Tuesday raised serious concern over the state of economy and blamed the Government’s policy for falling rupee and rising inflation. Facing all-round attack, Finance Minister P Chidambaram called for more reforms to deal with the situation and pressed for ending the “impasse” in coal and iron ore sectors to push growth.

Painting a gloomy picture of the economy, several Opposition members said in the Lok Sabha that they feared the repeat of the 1991 crisis when the country had to mortgage gold as it failed to meet short-term debt obligations.

Participating in a debate on the economic situation in the country, BJP leader Yashwant Sinha made a case for early elections. “The Government has lost control over the economy. So it is better that it goes.”

Sinha said the country had never seen such a “corrupt and incompetent” Government and suggested the removal of the UPA regime was the only way to remedy the measure. “There is only one solution (to the economic problems), go. Let people decide,” he said.

Alleging that the UPA has clung to power “to make thousands of crores”, the former finance minister referred to volatility in the currency and said the Government has failed to control it. “Market is disturbed and whatever is happening, it is not good for the country.”

Sinha compared Finance Minister P Chidambaram with an “incompetent doctor” for failing to contain the country’s  fiscal deficit and said a paralysis in decision-making was the main reason behind the current economic crisis. “If you run a large fiscal deficit then it will have an effect on inflation. A large fiscal deficit will spill over to current account deficit… It’s a vicious cycle,”  Sinha said. Read More 

Reading those creaking EM debt positions

Here’s a useful exercise from BAML on Thursday — at least if you can assumeIndonesia’s the emblematic economy for everything that’s made emerging markets look so ugly this summer.

(It’s got FX reserves which are now well off their levels of recent years, the current account deficit wouldn’t go away, China stopped buying so much of their stuff,indeterminate political risk, and everyone dimly remembers they had it rough in 1997-98. It’s a dream for vaguely-imprecating pundits.)

On the other hand, overall external debt is less than 30 per cent of Indonesian GDP.

So BAML’s analyst, Claudio Piron, tried to unpick whether stocks or flows are the big problem:

However, clients are becoming more anxious over the FX liquidity, declining FX reserves and the implications of external debt repayments (principle, interest and fees). As we mention on the opening page, an estimated USD22.2bn in private sector debt repayments is scheduled for H2.

Moreover, clients are expressing concern over the rapid increase in Indonesia’s external debt position by USD118.6bn from 2006 to 2012 – a magnitude of 89.4%. A large part of this was driven by the private sector external debt rising from USD75.8bn in 2006 to USD123.9bn presently.This rise needs to be put into context on two counts. First, GDP rose by an even greater amount and second, the rise in private sector debt is attributed to better reporting standards after 2011. BI imposed a financial sanction effective on July 2011, to encourage better reporting of debt statistics… Read More 

The emerging-market squeeze

THE flow of troubling news out of emerging markets is picking up. Equity indexes around Asia continued their recent losing streak this morning. Though India has borne the brunt of recent market punishment—the rupee’s epic slide has continued this week—there is plenty of pain to go around. Indonesian stocks have tumbled more than 10% over the past few days. Growth is cratering around the region.

Most news stories relate the carnage to anticipated changes in Federal Reserve policy: “tapering”, which may begin in September or October, of the pace of stimulative asset purchases. But why should that matter?

Large-scale asset purchases, or quantitative easing (QE), are generally described as working through several channels. One is an expectations channel. Purchases may help communicate central bank goals or increase policy credibility. Purchases can have a fiscal effect; by lowering expected government borrowing costs QE may reduce expectations of future taxation, encouraging more work and investment in the present.

Empirical assessments focus overwhelmingly on a third channel: portfolio rebalancing. When a central bank buys certain kinds of assets they leave the banks or funds who sold them the assets short of the particular kind of asset the central bank bought. So a fund that intends to keep a certain share of its portfolio in safe-ish long-term debt will sell Treasuries to the Fed in exchange for newly printed cash, but will then find itself in need of portfolio rebalancing to get back to its preferred distribution of risk, maturity, and so on. The fund then takes its cash and buys something similar to the assets it sold: highly rated mortgage-backed securities or corporates, for instance, or the safe debt of foreign governments. But the funds selling those assets will also need to rebalance, and they may adjust their portfolios by purchasing safer emerging-market debt or equities. As the money works its way through the system it raises asset prices around the economy. And because some of the rebalancing involves purchases of foreign assets, they weaken the domestic currency and can reduce borrowing costs and raise equity prices abroad. Read More 

Back to the 1980s-T N Ninan

Have we regressed to a pre-reform era? Consider the following. The eight years and more since 2004-05 have seen a continuous non-oiltrade deficit, the first such period since the 1980s – coincidentally, another period that saw overvalued exchange rates. The overallcurrent account deficit has trebled in the last four years, reaching levels that are now much higher than the pre-1991 crisis level of about three per cent of GDP. How have these deficits been financed? Partly by piling up foreign debt. In March 2005, the country’s foreign exchange reserves were more than its total foreign debt; now debt is much the larger figure – as it was pre-1991. What is more, the ratio of short-term debt (repayable within a year) to reserves has doubled since 2005, from 27.5 per cent to 59 per cent – a massive uptick in external vulnerability that mimics the pile-up of short-term debt in the late 1980s. Read More 

Manmohan Singh is an economic disaster in charge of mounting crisis

As the RBI released the data on India’s external front for 2012-13 last week, one was reminded of the 1991 financial crisis. And these figures reveal what we have been suspecting all along — we are in a gargantuan financial crisis – one that makes the crisis of 1991 a mere walk in the park. But that does not worry me for we never had a robust external sector since independence.

What is galling is that this time around the Government is in denial mode. The PM, FM, the deputy Chairman Planning Commission and a host of advisors to the PM and finance ministry who responded to these data in the media are either oblivious of the implications are simply lying through their teeth. Either way let us brace for a disaster. Let me elaborate.

In 2012-2013 India ran a current account deficit (total imports less exports) aggregating to $88 billion. To fund this deficit we necessarily needed capital inflows. Mercifully, we had a capital flow of approximately $46 billion and debt and other flows aggregating to $45 billion in 2012-2013. But this is how we have been carrying on for the past several years – mortgaging or selling the family silver to pay the grocer. Read More 

India has to repay $172 billion debt by March 2014

172India’s short-term debt maturing within a year stood at $172 billion end-March 2013. This means the country will have to pay back $172 billion by March 31, 2014. The corresponding figure in March 2008 — before the global financial meltdown that year — was just $54.7 billion. India has accumulated a huge short-term debt with residual maturity of one year after 2008. The figure has gone up over three times largely because this period also coincided with the unprecedented widening of the current account deficit from roughly 2.5 percent in 2008-09 to nearly 5 per cent in 2012-13. Much of this expanded CAD has been funded by debt flows.

This may turn into a vicious cycle.

More pertinently, short-term debt maturing within a year is now nearly 60 per cent of India’s total foreign exchange reserves. In March 2008, it was only 17 per cent of total forex reserves. This shows the actual increase in the country’s repayment vulnerability since 2008. Read More 

India’s External Debt end-March 2013-Full Text


The high current account deficit witnessed during 2012-13 and it’s financing increasingly through debt flows particularly by trade credit resulted in significant rise in India’s external debt during 2012-13. However, magnitude of increase in external debt was offset to some extent due to valuation change (gain) resulting from appreciation of US dollar against Indian rupee and other international currencies.

The major developments relating to India’s external debt as at end-March 2013 are set out below:

  1. India’s external debt, as at end-March 2013, was placed at US$ 390.0 billion showing an increase of US$ 44.6 billion or 12.9 per cent over the level at end-March 2012. The increase in total external debt during financial year 2012-13 was primarily on account of rise in short-term trade credit. There has been sizeable rise in external commercial borrowings (ECBs) and rupee denominated Non-resident Indian deposits as well.
  2. Excluding the valuation change (gain) due to the movement of US dollar (appreciation) against major international currencies and Indian rupee, the external debt as at end-March 2013 would have increased by US $ 55.8 billion over end-March 2012.
  3. In terms of major components, the share of external commercial borrowings continued to be the highest at 31.0 per cent of total external debt, followed by short term debt (24.8 per cent) and NRI deposits (18.2 per cent).
  4. The share of short-term debt in total debt, by original maturity, was 24.8 per cent. Based on residual maturity, short-term debt accounted for 44.2 per cent of the total external debt as at end-March 2013. Of this, the share of NRI deposits was 28.4 per cent.
  5. The ratio of short-term debt (original maturity) to foreign exchange reserves rose to 33.1 per cent as at end-March 2013 from 26.6 per cent as at end-March 2012.
  6. The debt denominated in US dollar continued to account for the highest share of 57.2 per cent in total external debt as at end-March 2013, followed by that denominated in Indian rupee (24.0 per cent) and SDR (7.5 per cent).
  7. The ratio of foreign exchange reserves to external debt as at end-March 2013 at 74.9 per cent was lower than the level of end-March 2012 (85.2 per cent). Read More 

US deficit falls faster than expected

The US budget deficit is declining faster than expected as the government collects more revenue from companies, households and the two mortgage companies it rescued in the financial crisis in the latest sign of the rebound of the world’s largest economy.

The brighter fiscal outlook comes as other advanced economies are struggling to reduce their deficits through drastic spending cuts and tax rises at a time of weak or negative growth. Growth figures to be released on Wednesday are expected to show that the 17-country eurozone contracted again.

New figures released by the non-partisan Congressional Budget Office showed the US budget deficit falling to $642bn, or 4 per cent of gross domestic product. Read More