Economic Survey: India in a better position with relatively low levels of debt compared to peers

India's economic position is notably strong, supported by relatively low levels of total debt as a proportion of Gross National Income (GNI) and a low percentage of short-term external debt as a percentage of total external debt, a comparison of several debt susceptibility indicators for India with those of peer nations in 2022 showed. The comfortable level of Foreign Exchange Reserves (FER) provides additional comfort, the Economic Survey 2023-24 report released on July 22 said.

With the primary goal of maintaining the current account deficit within a manageable range and promoting non-debt creation of external financing, India has carefully controlled its external debt, remaining sustainable over the years. By the end of March 2024, the external debt to GDP ratio decreased from 19% at the end of March 2023 to 18.7%. By the end of March 2024, the percentage of short-term debt (maturity of up to one year) in total external debt decreased from 20.6% to 18.5%. As of March 2024, the ratio of FER to total debt was 97.4%.

By boosting domestic savings, external debt enables economies to grow faster. High levels of economic growth are usually correlated with high levels of external debt in developing nations, and vice versa. On the other hand, an unmanageably high level of external debt may lead to vulnerabilities and harm the economy.

On the exports front, while uncertain geopolitical situations impacted India’s merchandise exports, falling global commodity prices ensured a lower trade deficit in FY24 than in FY23, resulting in improved CAD, ending Q4FY24 with a surplus of 0.6% of GDP.

Further, the report said that India's trade deficit is expected to go down even more in the upcoming years as the PLI scheme expands and the country establishes a manufacturing base that can compete globally across several product categories. Furthermore, it is anticipated that the newly concluded free trade agreements will boost India's export market share globally.