India's foreign currency debt grew by 12.4 per cent as compared to the figure at the end of March last year.

Unpleasant news for the Indian economy continues to flow in. In the latest, the Reserve Bank of India (RBI) has released data showing that India's external debt crossed half a trillion dollar ($529 billion) by the end of March 2018.

India's foreign currency debt grew by 12.4 per cent as compared to the figure at the end of March last year.

The data show that the ratio between India's external debt and the Gross Domestic Product (GDP) was 20.5 per cent at March-end this year. This was higher than the 20 per cent figure at the same time last year.

RBI says this rise can be attributed to increase in borrowings by Indians from overseas markets, deposits of non-resident Indians (NRIs) and rise in commercial borrowings.

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Besides this, the appreciation of dollar against rupee is hurting Indian economy, but its depreciation against other major currencies has led to a valuation loss. This loss is one of the factors behind the increase in India's external debt.

RBI figures also show that valuation loss due to the depreciation of dollar vis-a-vis major currencies (like euro, Japanese yen and UK pound sterling) was at $5.2 billion.

Without the valuation effect, the increase in external debt would have been $53.1 billion, instead of $58.4 billion at the end of March 2018 over the figure in 2017.

The reason for this is that dollar-denominated debt, with a share of 49.5 per cent, continues to be the largest component of India's external debt.

However, commercial borrowings growing at 30 per cent continue to be the largest component of our external debt. It comprise 38.2 per cent of the external debt, followed by NRI deposits (23.8 per cent (growing at 9.3 per cent)) and short-term trade credit (19.0 per cent (growing at 14 per cent)).

The RBI data also show that the outstanding debt of both government and non-government sectors increased at the end of March 2018.

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Other government external debt includes defence debt, investment in treasury bills and government securities, foreign central banks, international institutions and International Monetary Fund (IMF).

Details of India's external debt. (Source: RBI)

These figures are worrisome for the Indian economy as they come along with the Rupee falling to a lifetime low against the dollar at on June 28 and the current account deficit in March this year rising to 1.9 per cent of the GDP.

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Meanwhile, the depreciation of rupee is bad news for Indian companies that had borrowed overseas with a hope to benefit from lower interest rates therein. This is because their cost-of-capital risks can rise.

While the RBI data say Indians are borrowing more overseas, the all-included cost of overseas debt has risen by almost 100 basis points since March 2017.

As a result, the companies that borrowed in dollar, may eventually incur losses as repayment cost would go up neutralising the benefit of low borrowing rate.