India’s external debt went up sharply by over $50 billion for the financial year ended March 2008 — the highest year-on-year increase ever in last 18 years.
A fall in the value of the dollar against the Indian rupee and other international currencies, along with increased overseas borrowings by companies are being cited as reasons for the increase.
External debt, both government and non-government, stood at $221.2 billion as on March 2008, representing an increase of over 30 per cent in one year, said a Finance Ministry report.
The external debt of India, Asia’s third largest economy, rose by $83 billion in less than three years (between March 2005 and March 2008), while it took fifteen years for the external debt to increase by $54.3 billion to touch $138.1 billion.
External commercial borrowings (ECB), used by corporates to borrow money from abroad at a cheaper interest rate, rose 40 per cent to touch $70.6 billion in 2007-08, as compared to $48.52 billion a year-ago.
The last two years saw the sharpest increase in ECB at $38.29 billion. The share of such overseas borrowings in the total debt has risen to nearly 32 per cent now from under 24 per cent two years back.
In order to curb inflows via the ECB route, the finance ministry withdrew exemption given to ‘development of integrated township’, which was the only part of real estate sector where ECB proceeds were permitted.
The government also revised downwards the cost ceilings for ECB borrowings.
Further, it has set a limit of $20 million per borrower in a financial year, and any borrowing above $20 million have to used only for foreign currency expenditures.
Two concerns dominate the views of foreign inflows through ECBs. First, the influx of borrowings from abroad will increase the domestic money supply that has potential to accelerate the inflation rate.
Second, flow of money to sectors like real estate — which is classified as ‘sensitive’ by the government — was feared to cause price inflation.
Despite the huge increase in external debt, union finance minister P Chidambaram, in his foreword to the report, said: “Though India’s external debt stock increased during 2007-08, all the major solvency and liquidity indicators of external debt remained in the comfort zone”.
The weakening of the US dollar against other currencies accounted for 20 per cent of the increment in India’s external debt, said the report titled “India’s External Debt- A status report 2007-08”.
As nearly 57 per cent of India’s debt is denominated in US dollar, any decrease in the value of the US dollar against the Indian rupee and other international currencies means that stock of external debt increases.
In 2007-08, Indian rupee appreciated against US dollar by as much as 13 per cent, as per data available with Reserve Bank of India.
Despite the increase, the ratio of government debt to total debt has declined by 2.8 percentage points to 25.6 per cent as on March 2008, reflecting higher share of private borrowings.
Key external debt indictors like ratio of total external debt to GDP, ratio of short-term debt to foreign exchange reserves and ratio of short-term debt to total debt have shown an increase in the financial year 2007-08.
For example, ratio of external debt to GDP is now at 18.8, an increase of 1 percentage point and ratio of short-term debt to total debt stood at 20 per cent — an increase of 6 percentage points in one-year.
“India’s external debt has remained within manageable limits owing to cautious external debt policy pursued by the government”, said Chidambaram.
Compared to other developing countries, India’s debt service ratio was the second best after that of China’s and in terms of credit ratings, India was four places behind China.
Friday, September 05, 2008
US denies cover up for key documents on N-deal
Rejecting that it had covered up documents on stoppage of fuel supplies if India conducts a nuclear test, the US has said New Delhi's obligations are very clear as it had agreed to a moratorium on nuclear testing.
"Certainly, India's obligations under the 123 agreement are very clear and the Indians have agreed to a moratorium on testing. And we expect they will adhere to that commitment," State Department spokesman Robert Wood said.
A 26-page document released by Howard Berman, Chairman of the House Foreign Affairs Committee, contains an assertion by the Bush Administration that its assurances of nuclear supplies to India are not meant to "insulate" it against the consequences of a nuclear test.
"The Indians understand what our views are with regard to nuclear testing. We've made them clear. And they understand those. There was no attempt to cover up anything," Wood said brushing off suggestion that Washington kept the document under wraps to protect the government in India.
"... people have that interpretation, but that certainly was not the position of the US government. We weren't trying to keep anything under wraps. We've had discussions with various members of Congress about this agreement. We'll continue to do so.
"We've stressed over and over again the importance of this agreement, not only to the United States and India, but to our overall non-proliferation efforts around the world," the official said.
The 'disclosures' set off a flurry of political activity in India with the BJP and the Left demanding resignation of Prime Minister Manmohan Singh even as the UPA government rejected charges that New Delhi will lose the sovereign right to conduct an atomic test.
"Certainly, India's obligations under the 123 agreement are very clear and the Indians have agreed to a moratorium on testing. And we expect they will adhere to that commitment," State Department spokesman Robert Wood said.
A 26-page document released by Howard Berman, Chairman of the House Foreign Affairs Committee, contains an assertion by the Bush Administration that its assurances of nuclear supplies to India are not meant to "insulate" it against the consequences of a nuclear test.
"The Indians understand what our views are with regard to nuclear testing. We've made them clear. And they understand those. There was no attempt to cover up anything," Wood said brushing off suggestion that Washington kept the document under wraps to protect the government in India.
"... people have that interpretation, but that certainly was not the position of the US government. We weren't trying to keep anything under wraps. We've had discussions with various members of Congress about this agreement. We'll continue to do so.
"We've stressed over and over again the importance of this agreement, not only to the United States and India, but to our overall non-proliferation efforts around the world," the official said.
The 'disclosures' set off a flurry of political activity in India with the BJP and the Left demanding resignation of Prime Minister Manmohan Singh even as the UPA government rejected charges that New Delhi will lose the sovereign right to conduct an atomic test.
Will India clinch NSG waiver for N-deal today?
India's nuclear waiver is close to being clinched, and indications are the deal may be completed by Friday. After the first day’s talks in the Nuclear Suppliers Group, the objections are much fewer and many more countries have come around to having India inside the nuclear tent. Diplomats were tightlipped, but sources said it may be possible to channel the objections into a tough chairman’s statement that could be attached to the actual waiver document.
More countries are coming out with understanding of India’s energy needs. Part of the whittling down of the objections has been due to the huge effort mounted by the US and other supplier countries on the naysayers in the NSG. Part of it is due to the very real threat that India may walk out from a less-than-complete waiver. The pressure has been relentless on the smaller countries, many of whom have been quietly supported by biggies like China.
According to sources, some of the conditions that even Japan was asking for have disappeared, in the larger interest of the relationship with India, a reason that is said to be working powerfully on many other countries as well. The pressure is intense to complete the process by Friday, something many countries favour. Certainly some of the countries said, "we think it should be done this time". This, however, was offset by others who predicted this would go on until another round for a decision.
It was significant, some said, that the NSG broke for lunch and did not return until 5pm — many here felt there was a definite reason, like agreeing on some particular language. Since India is insistent that its ‘‘ moratorium on testing’ ’ suffice, this could be included in the final document.
According to sources, William Burns and John Rood, the two heads of the US delegation, have parked themselves in Vienna for two days now, working on these countries, with some success, they say. As during the IAEA safeguards vote, the holdout group may be splintering again. Certainly, New Zealand is wavering , as is Netherlands and some said, even the Irish and Switzerland. Austria remains a committed nonnuclear party.
About an hour into the meeting on Thursday morning, US undersecretary William Burns walked out with a statement detailing the kind of work the US was doing to push the deal. "We have before us a historic opportunity to end India’s three-decades of isolation from the nuclear regime. That opportunity warrants extraordinary efforts we’re making. The US is determined to continue to do all we can by working with NSG partners and India to realize that opportunity," it said.
BJP, CPM up ante; ask govt to quit
The disclosure of the gap between the stated positions of India and the US over the nuclear deal has revived hostilities between the government and Opposition.
On Thursday, both BJP and Left attacked Prime Minister Manmohan Singh for misleading Parliament, demanded an urgent session and the government's dismissal.
Pouncing upon the US state department's replies to some Congressmen, bringing out a disconnect between government's assurance on nuclear testing and the Bush administration's clarification that all sanctions would kick in should India conduct nuclear tests, the Opposition held Prime Minister Manmohan Singh guilty of breaching the privilege of Parliament.
BJP leaders Yashwant Sinha and Arun Shourie demanded that Parliament's session be convened within a week to allow for a privilege motion against the PM. CPM general secretary Prakash Karat also demanded an early monsoon session.
More countries are coming out with understanding of India’s energy needs. Part of the whittling down of the objections has been due to the huge effort mounted by the US and other supplier countries on the naysayers in the NSG. Part of it is due to the very real threat that India may walk out from a less-than-complete waiver. The pressure has been relentless on the smaller countries, many of whom have been quietly supported by biggies like China.
According to sources, some of the conditions that even Japan was asking for have disappeared, in the larger interest of the relationship with India, a reason that is said to be working powerfully on many other countries as well. The pressure is intense to complete the process by Friday, something many countries favour. Certainly some of the countries said, "we think it should be done this time". This, however, was offset by others who predicted this would go on until another round for a decision.
It was significant, some said, that the NSG broke for lunch and did not return until 5pm — many here felt there was a definite reason, like agreeing on some particular language. Since India is insistent that its ‘‘ moratorium on testing’ ’ suffice, this could be included in the final document.
According to sources, William Burns and John Rood, the two heads of the US delegation, have parked themselves in Vienna for two days now, working on these countries, with some success, they say. As during the IAEA safeguards vote, the holdout group may be splintering again. Certainly, New Zealand is wavering , as is Netherlands and some said, even the Irish and Switzerland. Austria remains a committed nonnuclear party.
About an hour into the meeting on Thursday morning, US undersecretary William Burns walked out with a statement detailing the kind of work the US was doing to push the deal. "We have before us a historic opportunity to end India’s three-decades of isolation from the nuclear regime. That opportunity warrants extraordinary efforts we’re making. The US is determined to continue to do all we can by working with NSG partners and India to realize that opportunity," it said.
BJP, CPM up ante; ask govt to quit
The disclosure of the gap between the stated positions of India and the US over the nuclear deal has revived hostilities between the government and Opposition.
On Thursday, both BJP and Left attacked Prime Minister Manmohan Singh for misleading Parliament, demanded an urgent session and the government's dismissal.
Pouncing upon the US state department's replies to some Congressmen, bringing out a disconnect between government's assurance on nuclear testing and the Bush administration's clarification that all sanctions would kick in should India conduct nuclear tests, the Opposition held Prime Minister Manmohan Singh guilty of breaching the privilege of Parliament.
BJP leaders Yashwant Sinha and Arun Shourie demanded that Parliament's session be convened within a week to allow for a privilege motion against the PM. CPM general secretary Prakash Karat also demanded an early monsoon session.
Euro Slides to 11-Month Low Versus Dollar on Recession Risks
The euro slumped to an 11-month low against the dollar on speculation a credit-market slump will push European economies into recession.
The currency headed for its biggest weekly decline versus the yen in more than a year after European Central Bank President Jean-Claude Trichet said the economy is ``weak'' and Luxembourg Finance Minister Jean-Claude Juncker said the euro is ``overvalued.'' The yen jumped to two-year highs against the Australian and New Zealand dollars as declines in stocks and commodities prompted investors to reduce holdings of higher- yielding assets funded in the Japanese currency.
``This is a global recession story,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``We're seeing a reversal of what's been happening over the past two years. Now the dollar and the yen are benefiting as risk appetite is on the decline.''
The euro fell to $1.4269 at 12 p.m. in Tokyo, from $1.4325 yesterday. It earlier touched $1.4214, the weakest since Oct. 24. The euro slid to 150.60 yen, the lowest since Aug. 17, 2007, before trading at 152.52 yen from 153.40 yen. It fell 4.2 percent this week. The yen reached 105.69 per dollar, the highest since July 17, and traded at 106.84. The euro may decline to $1.40 in six months, Umemoto said.
Carry Trades
The Australian dollar dropped 3 percent to 87.65 yen from late Asian trading yesterday. It touched 85.88 yen, the lowest since July 2006. New Zealand's dollar slumped 3.7 percent to 71.39 yen, reaching 69.96, the lowest since July 2006. The UBS Bloomberg Constant Maturity Commodity Index reached a seven- month low and the Standard & Poor's 500 Index tumbled the most in three months.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand. The risk to is that currency moves may erase profits.
Volatility implied by dollar-yen options expiring in one- month rose to 12.59 percent, the highest in a more than a month.
``These currency moves are huge,'' said Toru Tokoyoda, head of foreign exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm. ``Volatility is likely to squeeze higher on further gains in the yen as that would spur demand to hedge against that move.''
One-month volatility may rise to 15 percent provided that the yen rises to 105 per dollar today, he said.
Korean Won
South Korea's won rose 0.2 percent to 1,126.70, reversing an earlier drop of as much as 1.2 percent, on speculation the central bank is buying the currency after it two days ago breached 1,150 for the first time in four years. The nation's foreign-exchange reserves fell by $21 billion in the five months through August to $243 billion as the Bank of Korea bought won to try to halt the currency's slide.
A 10 percent drop in the won in the past month sparked concern South Korea may be headed for a repeat of 1997, when the currency lost half its value versus the dollar and the country turned to the International Monetary Fund for a $57 billion bailout to help companies repay overseas debt. Central bank Governor Lee Seong Tae yesterday told lawmakers there is no need to worry that the country is facing a financial crisis.
The euro dropped for a seventh day against the dollar, its longest decline since October 2006. The ECB yesterday kept its main refinancing rate at a seven-year high of 4.25 percent and Trichet told a press conference growth risks are on the ``downside.''
`Effectively Overvalued'
Europe's currency extended its decline after Luxembourg Juncker told reporters the currency is ``effectively overvalued.'' The euro has dropped more than 10 percent against the dollar from the record high of $1.6038 set on July 15.
``Juncker's comments pushed the euro lower,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It's a bit of an overshoot. It reflected a market that really wants to buy dollars.''
The ICE future exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 78.822 after yesterday touching 79.077, the highest in almost a year.
U.S. nonfarm payrolls probably shrank by 75,000 last month, following a drop of 51,000 in July, according to the median forecast of 76 economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington.
``The dollar faces downside risks against the yen,'' said Tohru Sasaki, chief strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``A worse-than-expected payrolls number would stoke fears about a global recession.''
The dollar may fall to 103.70 yen in the next few days, he said.
`Financial Tsunami'
The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' said Bill Gross, co-chief investment officer of Newport California-based Pacific Investment Management Co., manager of the world's biggest bond fund, on the firm's Web site yesterday.
The ECB lowered its 2008 economic growth forecast yesterday to about 1.4 percent from 1.8 percent and its 2009 prediction to 1.2 percent from 1.5 percent. The central bank raised its inflation forecast for this year to 3.5 percent from 3.4 percent and 2.6 percent from 2.4 percent for 2009.
Sterling fell for a ninth day, reaching a two-year low of $1.7538 after the Bank of England yesterday kept its target lending rate at 5 percent. Policy makers judged the fastest inflation in more than a decade outweighed the risk that the British economy is sinking into a recession.
European Haircut
Banks in the U.K., Spain and Ireland that have relied on the ECB for low-cost funding will have to pay more as it tightens lending rules to prevent abuses.
The ECB will increase the so-called `haircut' on most asset-based securities from Feb. 1 to 12 percent from as little as 2 percent, the central bank said yesterday. That means it will lend just 88 percent of the value of the paper.
``The liquidity situation continues to be severe and this could be one reason for the euro to weaken,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. ``This also focuses attention on the divergence in banks and economies in the euro region.''
The euro may fall to $1.40 this month after breaking below a cloud on its weekly ichimoku chart used to show support levels, he said.
The currency headed for its biggest weekly decline versus the yen in more than a year after European Central Bank President Jean-Claude Trichet said the economy is ``weak'' and Luxembourg Finance Minister Jean-Claude Juncker said the euro is ``overvalued.'' The yen jumped to two-year highs against the Australian and New Zealand dollars as declines in stocks and commodities prompted investors to reduce holdings of higher- yielding assets funded in the Japanese currency.
``This is a global recession story,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``We're seeing a reversal of what's been happening over the past two years. Now the dollar and the yen are benefiting as risk appetite is on the decline.''
The euro fell to $1.4269 at 12 p.m. in Tokyo, from $1.4325 yesterday. It earlier touched $1.4214, the weakest since Oct. 24. The euro slid to 150.60 yen, the lowest since Aug. 17, 2007, before trading at 152.52 yen from 153.40 yen. It fell 4.2 percent this week. The yen reached 105.69 per dollar, the highest since July 17, and traded at 106.84. The euro may decline to $1.40 in six months, Umemoto said.
Carry Trades
The Australian dollar dropped 3 percent to 87.65 yen from late Asian trading yesterday. It touched 85.88 yen, the lowest since July 2006. New Zealand's dollar slumped 3.7 percent to 71.39 yen, reaching 69.96, the lowest since July 2006. The UBS Bloomberg Constant Maturity Commodity Index reached a seven- month low and the Standard & Poor's 500 Index tumbled the most in three months.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand. The risk to is that currency moves may erase profits.
Volatility implied by dollar-yen options expiring in one- month rose to 12.59 percent, the highest in a more than a month.
``These currency moves are huge,'' said Toru Tokoyoda, head of foreign exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm. ``Volatility is likely to squeeze higher on further gains in the yen as that would spur demand to hedge against that move.''
One-month volatility may rise to 15 percent provided that the yen rises to 105 per dollar today, he said.
Korean Won
South Korea's won rose 0.2 percent to 1,126.70, reversing an earlier drop of as much as 1.2 percent, on speculation the central bank is buying the currency after it two days ago breached 1,150 for the first time in four years. The nation's foreign-exchange reserves fell by $21 billion in the five months through August to $243 billion as the Bank of Korea bought won to try to halt the currency's slide.
A 10 percent drop in the won in the past month sparked concern South Korea may be headed for a repeat of 1997, when the currency lost half its value versus the dollar and the country turned to the International Monetary Fund for a $57 billion bailout to help companies repay overseas debt. Central bank Governor Lee Seong Tae yesterday told lawmakers there is no need to worry that the country is facing a financial crisis.
The euro dropped for a seventh day against the dollar, its longest decline since October 2006. The ECB yesterday kept its main refinancing rate at a seven-year high of 4.25 percent and Trichet told a press conference growth risks are on the ``downside.''
`Effectively Overvalued'
Europe's currency extended its decline after Luxembourg Juncker told reporters the currency is ``effectively overvalued.'' The euro has dropped more than 10 percent against the dollar from the record high of $1.6038 set on July 15.
``Juncker's comments pushed the euro lower,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It's a bit of an overshoot. It reflected a market that really wants to buy dollars.''
The ICE future exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 78.822 after yesterday touching 79.077, the highest in almost a year.
U.S. nonfarm payrolls probably shrank by 75,000 last month, following a drop of 51,000 in July, according to the median forecast of 76 economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington.
``The dollar faces downside risks against the yen,'' said Tohru Sasaki, chief strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``A worse-than-expected payrolls number would stoke fears about a global recession.''
The dollar may fall to 103.70 yen in the next few days, he said.
`Financial Tsunami'
The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' said Bill Gross, co-chief investment officer of Newport California-based Pacific Investment Management Co., manager of the world's biggest bond fund, on the firm's Web site yesterday.
The ECB lowered its 2008 economic growth forecast yesterday to about 1.4 percent from 1.8 percent and its 2009 prediction to 1.2 percent from 1.5 percent. The central bank raised its inflation forecast for this year to 3.5 percent from 3.4 percent and 2.6 percent from 2.4 percent for 2009.
Sterling fell for a ninth day, reaching a two-year low of $1.7538 after the Bank of England yesterday kept its target lending rate at 5 percent. Policy makers judged the fastest inflation in more than a decade outweighed the risk that the British economy is sinking into a recession.
European Haircut
Banks in the U.K., Spain and Ireland that have relied on the ECB for low-cost funding will have to pay more as it tightens lending rules to prevent abuses.
The ECB will increase the so-called `haircut' on most asset-based securities from Feb. 1 to 12 percent from as little as 2 percent, the central bank said yesterday. That means it will lend just 88 percent of the value of the paper.
``The liquidity situation continues to be severe and this could be one reason for the euro to weaken,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. ``This also focuses attention on the divergence in banks and economies in the euro region.''
The euro may fall to $1.40 this month after breaking below a cloud on its weekly ichimoku chart used to show support levels, he said.
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