c


 

Indian has utilised a sum of Rs. 2, 00,000 crore by way of foreign loans since the beginning of the
first five year plan in 1951.

India has received aid from various sources both institutional and individual countries, which can be
divided into two parts

i)p corum member

ii)p Others

corum Members

In the wake of serious foreign exchange crises that hit the Indian economy during the 1957-58 , the
Aid India Consortium presently known as the Indian Development corum was formed. The object of
this formation is to coordinate the aid programmes of different sources that are extending financial
assistance to India. The forum has been the major source of financial assistance to India ; about 90 per
cent of the total aid, including, loans, grants and commodity assistance, utilised in India till the end of
2007has come from this source. Within the forum our major donor has been The USA, The IBRD,
and the I.D.A. have been providing assistance to India since 1949. Among the other major donor
countries within the forum are U.K., Canada, Germany and Japan.

Others

Among others, we have been getting aid from various multilateral and bilateral external agencies, as
also various individual countries. The large portion of assistance through these agencies has taken the
form of grants.

-





 

About 60 percent of the total aid received has been in the form of multilateral aid; about 90 per cent of
the total multilateral assistance has come from the World Bank. Bilateral aid has accounted for 40 per
cent of the total external assistance; during the past five years, taken together, Japan has led the group
of India¶s bilateral donors having accounted for 22.5 per cent of bilateral aid utilised by India.

  

India¶s experience with cA has been a mixed one. While on the one hand, cA has helped India raise
its productive capacity in all the sectors of the economy, it has also inflicted heavy costs, both direct
and indirect.



 





During mid- 1980s concessional aid to India from varied sources almost reached a plateau and indeed
was on a reverse track. It was in this context, when the foreign exchange shortage began to work as a
constraint on India¶s developmental efforts, India was forced to borrow from private foreign sources,
i.e, from international credit market. These loans are called µexternal commercial borrowings¶ (ECBs)

ECBs include loans from commercial banks, other financial Institutions , suppliers credits,
bonds, cRN & loans from semi government export agencies IcC (w), DEG Germany, CDC U.K., &
Nordic Investment bank. The major source of ECB, presently is µEurodollar¶ or µEurocurrency¶
market. The market for dollar denominated loans located anywhere can be termed as Eurodollar
market, and would not be subject to US domestic banking regulations like reserve requirements on the
liabilities, interest rate restrictions and exchange control restrictions.

÷÷ 


India borrowed small amounts from private capital markets until 1979-80. There were sizable
borrowings during the 1980s of the order of over Rs. 5,000 crore a year. During the first half of the
1990s, India faced difficulties in raising resources through ECBs, India¶s credit rating had sharply
deteriorated. International credit agencies upgraded India's credit rating investment grade in 1995.
There was some increase in the ECBs during 1994-1995 and the trend continued thereafter, as would
be seen from table 1 below:


  
  

        

!
"#$%$&' 89,317 11,462 22,456 -13,260 -8,283 -5,413 -1,094
!()*++*%,' 22,165 2,723 5,040 -2,925 -1,621 -1,147 -358

During 2001-04, these became negative. During 2004-05, these again became positive, more than
90% of the total approvals have taken place under the automatic approval route of the RBI. The bulk
the (75% to 80%) borrowings have been by public sector units like the ONGC, NTPC, BHEL, MUL,
etc. The maturities have varied from 3 to 10 years generally and interest charges between 12 and 16
per cent; the spreads have been 0.57-0.75 per cent LIBOR (London inter-bank offer rate, the
benchmark rate at which banks loan money to one another).



c c



*-&: With a total of Rs. 8,845 hundred crore as at the end-march, 2008, India ranks seventh among
the developing country debtors. As a proportion of GDP, India¶s ED rose from 14.3 per cent of GDP
in 1980-81 to 18.8 per cent in 2007-08.

Distinct phases as follows can be observed in the inter-temporal evolution of external debt.

1)p The pace of expansion of external debt slowed down considerably in the second half of the
1990s after recording a compound growth rate of 5.5 per cent in the first half of the 1990s.
2)p In the period 2000-2007, the compound growth rate of external debt was lower than in the
first half of the 1990s.

India is the eight largest debtor country in the world after Brazil, China, Russian cederation, Mexico,
Argentina, Indonesia and Turkey. Its comparative indebtedness position has however improved over
the years. India ranked third in 1993; fourth in 1994 and eight in 2005.

÷







An important part of India¶s external debt is that a large part of the debt specially debt to multilateral
development banks and bilateral donors, has a high degree of concessionality. This means that the
present value of the debt is much lower than the nominal value. Recently, the World Bank has
calculated the present value of developing countries¶ debt by discounting repayments at the
appropriate interest rates. The present value of India¶s debt is only $140.00 billion as against a
nominal debt of $ 201 billion. It indicates two things: (i) India has been conservative in the
obligations she has undertaken, and (ii) India has borrowed on extensively good terms ±long maturity
loans at low rate of interest.

%).%"*/*%,0

India¶s total ED consists of the following:

1)p Long term Debt ($ 176.90 billion or about 80%): constitutes of multilateral borrowings both
by the government and by the non government , Bilateral borrowings both by the government
and Non-Government, drawings from the IMc, Export credit, Commercial borrowings, NRI $
cC deposits.
2)p Short Term Debt (20%of the total debt): consists of NRI deposits(less than one year
maturity), cC (BCO) deposits, and others (above six months).

Over the last decade the  debt in the total debt has been steadily going down, current down
to a mere 7.7 per cent in 2006-07 from a high of 10 per cent in 1990-91.
 
  !
" ##$  

  /&) (
1*++*%,
 Multilateral 39.31
 Bilateral 19.61
 ECBs & Trade Credit 62.02
 NRI deposit 43.67
 Rupee Debt 44.31
 Short term Debt 221.21

Apart of total debt has been contracted at concessional terms; this has been in the case of government
borrowings from IDA & other multilateral agencies & bilateral sources. Concessional debts were
about 19.9 % of the total debt at end march 2008. India had the largest share of concessional debt
among the top 10 debtor countries of the world. India¶s external debt has shifted in favour of private
debt over the last decade. The ratio of government and non-government debt which was roughly
60:40 during the 1990 to 1995 declined to 26:74 by march 2008.

/$2/&34

Major elements of strategy pursued by the government are as follows:

i)p The basic thrust will be that short-term debt would not be used as an instrument for
protecting reserves.
ii)p Any short-term debt not governed by exchange control provisional should be specifically
approved by the RBI after satisfying itself the resource to such debt was on genuine cost-
related considerations or trade-related considerations.
iii)p Exchange control provisions would continue to permit normal trade-related credits upto
six months since these are adequate to meet the requirements of Indian borrowers.
iv)p Pre-payment/ refinancing of expensive external debt and other measures will be initiated
to actively manage sovereign external debt of the country.
v)p A high-level committee on debt management will continue to regularly review the
magnitudes, composition and allocation of the commercial debt.
vi)p The external debt may be hedged against currency and interest rate risk