A note on External Commercial Borrowings in India: Rapid growth amidst some vulnerabilities

Abstract

External debt flows to developing and developed countries have increased rapidly over the last few years. A study prepared by the Institute of International Finance (IIF) and reported by Reuters indicate that global debt has risen to record US$ 226 trillion, which is more than three times global economic output. The developing world is estimated to have external debt amounting to US$ 59 trillion. This increase in debt to developing countries is largely driven by China, which presently has a debt burden of US$ 35 trillion2 . India is also receiving increased debt flows. Since 2007-08, India’s external debt stock increased from around US$ 200 billion to hit about US $ 485 billion in end-March 2016 before climbing down to US $ 472 billion in end-March 2017. This has been largely driven by a rapid rise in External Commercial borrowings (ECBs) by Indian firms. Also, in the last one-year, monthly data show that portfolio flows to Indian capital market has been strongly dominated by debt flows. Apart from a few months, net debt inflows have been much higher than equity inflows in the present calendar year (Figure 1).