INDIA, IMF & EXTERNAL DEBT

         Few days back one of my friends and former colleague (Mr. K. Shreedhar) was telling his review over my blog. At that time we were also discussing on India’s growth story. Next day he had sent me a link with the headline that “No impact on Fisc as India lends to IMF” - FE (Full article link: http://www.financialexpress.com/news/No-impact-on-fisc-as-India-lends-to-IMF/630299/ ) and said the story has just begun. The article states that “For India two decades after liberalisation, one of the biggest (and relatively unsung) shifts has been that she has turned into a lender country to the IMF.” No Doubt, this is one of the most unsung glories. When I read this news I was happy initially, but, suddenly this made me to think whether our Foreign Debt has been reduced; if so, to what extent? etc… So I have done some research to find out certain things.
         
          Recently many would have read in news papers that “India’s External Debt’s rises by 11.9% at end of December 2009”. Many of the People might think what is the relationship between External Debt and India’s lending money to IMF. There is a relationship between the two; in 1989-1991 we went to IMF for loan because of the external debt. I felt like seeing the GDP ratio of External Debt from 1990-91 where I found that our GDP ratio to External debt has declined but not to a great extent. In the Year 1990-91 our external debt to GDP was 28.7% while in the year 2008-09 (Revised Estimates - RBI) is 21.4% which is 25.44% decline in the Foreign Debt over 17 years.


           Many people may think that the 21.4% is higher but the fact is we are better than many nations. Among the BRICS Nations India’s external debt is third lowest after South Africa (16%) and Brazil (19%). China’s External Debt is much higher than India (41%). Compared to developed nations we are much better, the following list shows the % of GDP of developed nations (Source: Wikipedia)


Country                  % of GDP


United States             94%
United Kingdom      416%
Germany                 155%
France                    188%
Netherlands             470%
Spain                      165%
Italy                        101%
Ireland                  1004%
Japan                       42%


              Then what is the one of the India’s real problem now. The most worrying part of INDIA is it's Fiscal Deficit, which is  around 78% of it's GDP.