Consider the following statements : 1. Most of India's external debt

Consider the following statements :

1. Most of India’s external debt is owed by governmental entities.
2. All of India’s external debt is denominated in US dollars.

Which of the statements given above is/are correct?

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option4″]

This question was previously asked in

UPSC IAS – 2019

Neither statement 1 nor statement 2 is correct.

Statement 1 is incorrect. India’s external debt is owed by various sectors, including sovereign (government) and non-sovereign entities (such as corporate sector, banks, and NRI depositors). Data from the Reserve Bank of India (RBI) consistently shows that non-sovereign debt constitutes a larger portion of India’s total external debt than sovereign debt. For instance, non-sovereign debt often accounts for over three-fourths of the total external debt.

Statement 2 is incorrect. India’s external debt is denominated in multiple currencies. While the US dollar is the dominant currency, a significant portion is also denominated in Indian Rupees (e.g., Rupee Denominated Bonds held by non-residents), SDRs, Japanese Yen, Euro, and other currencies. Therefore, not all of India’s external debt is denominated in US dollars.

India’s external debt composition is monitored closely by the government and RBI. Key components of non-sovereign debt include commercial borrowings, NRI deposits, short-term trade credit, and rupee debt. The currency composition is important for assessing exchange rate risk.

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