India s External Debt An Analysis of Growth Causes Management and Impact

Abstract

The prime objective of every economy is to achieve targeted growth over a given period. The capital, an important ingredient of economic growth can be arranged either from domestic or external sources which include aids, grants, foreign investment and the external debt. External debt is considered as one of the important sources of capital for a country. It has positive impact on investment and economic growth of a country. At the same time, a country may observe numerous problems associated with external debt, e.g., debt accumulation, debt sustainability, inability to meet debt obligations, inability to raise foreign loans in its own currency. newlineExternal borrowing had been an integral part of government s economic policy for raising funds to facilitate the development programme at largest possible scale. Since 1951, the volume of India s external debt has increased rapidly. Though, a shift in country s gross external debt was observed after introducing the process of economic reforms, its volume increased by more than 5.5 times over a period from 1991 to 2017. The increasing volume of external debt is matter of concern for policy makers, economists and researchers. It involves several questions concerned with causes, effects and management of India s external debt. Present study is an attempt to answer these questions. newlineThe study identified key macroeconomic factors which explain sixty two percent variations in India s gross external debt. It also observed positive contributions of external debt on country s GDP, capital formation and forex reserves and negative on fiscal deficit. The empirical findings suggest that though India s external debt is properly managed, it needs clearly defined regulatory framework and effective monitoring of international financial relations. The borrowing decisions should be compiled, monitored, updated and disseminated by a central authority so that government may evolve proper strategy for debt service obligations in short as well as is long run considering variations in global interest rates, exchange rates and other prominent macroeconomic variables. For strengthening debt repayment capacity, policy makers should focus on trade promotion and have a fresh look on alternative sources of forex reserves. newline newline