India Intelligence Report

India has Very Low Debt to GNP Ratio


In another verification of how well the Indian economy is performing, an economic survey has highlighted that India has one of the lowest Gross Domestic Product to external debt ratio next only to China. A ratio of 22% despite growing external debt shows how well the economy is growing keeping pace with the growth of debt.

India’s external debt is mainly long-term debt, which makes up 90% of the total and the rest from short-term debt. While the growth of total debt is 9.8%, long-term debt grew by 8.3% in line with overall economic growth. Long-term debt includes multi-lateral debt, bilateral debt, trade credit, external commercial borrowings, non-resident Indian (NRI) deposits, and Rupee debt. For the first time since the start of liberalization of the economy in 1990s, external commercial borrowings and trade credit have grown faster than NRI deposits.

These trends mean that there is strong growth in economy, less reliance on deposits from NRIs, the ability of trading houses to raise money to finance their growth, and increased confidence to borrow and lend funds by and in Indian businesses. 

One downside seen is that the increased use of leverage instead of equity dilution to finance growth means either company laws are prohibiting companies from raising equity freely, lack of equity investors in Indian companies, or unwillingness to dilute liquidity or control by those who own major stakes in the company even at the cost of margins and shareholder value. Indian company laws do hinder equity dilution and investment accumulation and a few powerful individuals who refuse to dilute equity because of fear of losing control own many Indian companies. With the number of billions of dollars getting into the equity market every month, one can rule out lack of equity investors.