India’s foreign debt up 23% as firms borrow more from abroad

India’s foreign debt up 23% as firms borrow more from abroad

New Delhi: India’s external debt rose 23% in the most recent fiscal year, largely because of a sharp rise in overseas borrowing by Indian companies, the government said on .

The dollar’s slide against major currencies also contributed to the increase, the federal finance ministry said in a report.

Outstanding foreign loans totalled $155 billion on 31 March 2007, compared to $126.5 billion a year ago, the ministry said. India’s fiscal year runs from April through March.

Finance Minister P. Chidambaram said despite the increase the ratio of foreign debt to national income in India was one of the lowest among major economies of the world.

The ratio of interest charges and loan repayments to export earnings _ a measure of a country’s ability to service debt _ showed “a perceptible improvement," declining to 4.8% last year from 9.9% a year ago, the ministry said in its report.

More importantly, short term borrowing grew at a slower pace, up 12% from a year ago, and accounting for just 7.7% of total debt.

A low share of short term debt means the country is less vulnerable to flight of capital.

Also, India’s current foreign exchange reserves are about one and half times its total external debt.

The finance ministry report said more than half of the increase in India’s foreign debt came from borrowing by companies, which look to overseas sources for lower interest rates. Indian companies have also been tapping overseas sources to fund their foreign acquisitions.

The ministry’s report said the dollar’s slide also contributed to the increase, as it made loans from non-US sources more expensive. Over the past year, the dollar has weakened against all major currencies, including the rupee.

In rupee terms, India’s total external debt rose 19.7% through last fiscal to 5.645 trillion rupees, the ministry said.