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Explainer: What India’s external debt position tells about its economy

NEW DELHI: A depreciating rupee and contracting foreign exchange reserves raised concerns about India's external debt position.

As neighbours Sri Lanka and Pakistan grapple with an unprecedented economic crisis, speculations were rife that India may also face the same situation soon amid rising foreign debt, owing to persisting geopolitical pressures.

However, data released by the Reserve Bank of India (RBI) showed that India's external debt situation is reasonably comfortable and it does not have economic problems like Sri Lanka and Pakistan.

According to Centre for Monitoring Indian Economy (CMIE), most of the indicators determining the sustainability of external debt appear to be in line with the past trend.

However, there are concerns regarding short term debt in view of the pressure it can exert on the sharply depreciated rupee, it said.

What is external debt

When a country borrows money from foreign lenders through commercial banks, governments or international financial institutions, that is its external debt.

A country can fall into debt crisis if it is unable to repay the debt taken on time.

It largely depends on the exchange rate between two economies, so risk persists. If the exchange rate depreciates in comparison to any foreign currency whose debt has been taken, there is a jump in cost of servicing the external debt.

What is India's debt position

As per the latest RBI data, India's external debt stood at $620.7 billion at end-March 2022.

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