India debt: India’s external debt, which includes external commercial borrowings, NRI deposits, short-term trade credit, and loans from multilateral financial institutions, stood at approximately $558.5 billion (about Rs 50,29,309 crore) at the end of March 2020, Finance Ministry data has revealed.
But have you ever wondered who lends India the maximum amount of money, and to whom this debt is owed to? Let us find out.
Who is India’s biggest lender?
Contrary to speculations, India doesn’t loan money from any single country, instead New Delhi’s external debt is spread across numerous global financial institutions, foreign banks, and investors across the world.
As per Finance Ministry data, the largest chunk of India’s external debt does not come from any single foreign government, but from international markets and institutional investors, with foreign banks, global bond market, and private lenders constituting a major portion of the total debt amount.
Among institutional lenders, multilateral organizations have played a vital role in funding India’s development projects, with the World Bank and the Asian Development Bank consistently being among the country’s biggest lenders, providing critical financial assistance during times of crisis like the Covid-19 pandemic.
How loans help India during crisis?
During the pandemic, financial aid from these bodies helped India strengthen its healthcare infrastructure and support the MSME sector, as well as maintain its education systems.
Loans from institutions like the World Bank and ADB, which are usually long-term and offer low-interest rates, were crucial in helping India to recover during the Covid-19 pandemic as the funds were used to support public health systems, emergency welfare programs, small businesses, and post-COVID economic recovery.
Why India doesn’t take loans from a single country?
While India has strong ties with economic superpowers like the United States, European nations and wealthy Gulf states like Saudi Arabia, Qatar and the UAE, it has by design avoided being reliant on any single country for its foreign borrowing.
A major chunk of India’s external debt comes from numerous global sources, including the international bond market, institutional investors, and multilateral agencies. This allows the Indian economy to insulate itself from geopolitical pressures, currency shocks, and sudden changes in lending terms from any single country.
How external debt is repaid by India?
A highly-disciplined and systematic procedure is in place in India for repaying foreign debt, with the primary method being the use of the country’s foreign exchange reserves (Forex), providing a strong cushion against repayment obligations.
Repaying foreign debt from forex reserves allows India to pay both principal and interest without destabilizing the economy, according to experts.
Debt repayment plans are also established through annual budget allocations as the government allocates a portion of funds to repay loans. Additionally, forex earned from exports is also used to repay the country’s external debt.