Macro and micro dimensions of external commercial borrowings Implications for Indian economy

Abstract

External Commercial Borrowings of India (ECBs) refer to commercial debt capital flow into India, borrowed by eligible domestic entities, from eligible foreign creditors at commercial lending rates. Channels of ECBs are through banks, bonds and trade credits. A salient feature of the trend in debt capital flows across Emerging and Developing economies (EMDEs) is the drastic decline in newlinethe share of official external borrowings and increase in private external borrowings. India is nocexception to this global phenomenon. From the mid-2000s, foreign borrowings by India s corporate sector (ECBs), has been occupying the largest share in India s external debt (36.7 percent as of September 30, 2016).Need for the study arises because of the following: Huge accumulation of private external debt has potential challenges for macroeconomic management. Correlated defaults by several borrowers and unhedged foreign currency exposure, newline pecifically with shorter maturity are potential for systemic risks that may lead to a crisis. It may also affect the credit worthiness of the capital importing country, besides inviting tough debt restructuring conditions. These macroeconomic challenges coupled with dominant share of ECBs in India s external debt create a need to understand its macro and micro dimensions. newline