Previous Year Question
India’s external debt increased from US$98,158 million at the end of March 2000 to US$100,255 million at the end of March 2001 due to an increase in:
multilateral and bilateral debt
rupee debt
commercial borrowings
borrowings from the International Monetary Fund
Correct Answer: C
Detailed Solution
According to the RBI, India’s total external debt increased by US$2,097 million, or approximately 2.1%, between March 2000 and March 2001.
The movement in the principal components was as follows:
External-debt component | March 2000 | March 2001 | Change |
Multilateral debt | US$31,438 million | US$31,103 million | −US$335 million |
Bilateral debt | US$18,176 million | US$16,624 million | −US$1,552 million |
IMF debt | US$26 million | US$0 | −US$26 million |
Commercial borrowings | US$26,634 million | US$29,941 million | +US$3,307 million |
NRI deposits | US$13,562 million | US$15,432 million | +US$1,870 million |
Rupee debt | US$4,389 million | US$3,693 million | −US$696 million |
Short-term debt | US$3,933 million | US$3,462 million | −US$471 million |
Total external debt | US$98,158 million | US$100,255 million | +US$2,097 million |
The data establish that:
Both multilateral and bilateral debt declined; therefore, option (a) is incorrect.
Rupee debt also declined; therefore, option (b) is incorrect.
Outstanding IMF debt fell to zero by March 2001; therefore, option (d) is incorrect.
Commercial borrowings increased by US$3,307 million; therefore, option (c) is correct.
A major reason for the increase in commercial borrowings was the mobilisation of approximately US$5.5 billion through India Millennium Deposits—IMDs in November 2000. Under the RBI’s external-debt classification used at that time, IMDs were included within commercial borrowings.
Although IMDs increased gross commercial debt, sluggish normal commercial borrowing, valuation effects and reductions in other debt components restricted the net increase in total external debt to about US$2.1 billion.