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External debt jumps $12.6 billion to $346.6 billion in Apr-Jun: RBI

The country's international investment position (IIP) has deteriorated during the June quarter as net claims of non-residents rose $12.6 billion to $346.6 billion following a sharper rise in the value of foreign-owned assets in the country vis-a-vis rise in the value of residents' financial assets abroad.
‘Net claims of non-residents on the country, as reflected by the net IIP, rose $12.6 billion to $346.6 billion at the end of the June quarter from the previous quarter,’ the Reserve Bank has said.

This change in the net position shows a $22.9 billion increase in the value of foreign-owned assets in the country vis-a-vis a $10.4 billion increase in the value of residents' financial assets abroad, the RBI said.
However, the ratio of the country's international financial assets to international financial liabilities improved to 58.7 per cent in the June quarter from 59.1 per cent in the March quarter.

On an annual basis, the numbers deteriorated much faster as net IIP in June 2013 quarter stood at $313.4 billion, an increase of $33.2 billion. In the September quarter of FY14, net IIP had stood at a $302.7 billion while the same was $318.8 billion in the December 2013 quarter.

Similarly, residents' financial assets abroad, too, rose $10.4 billion in Q1 to $492.8 billion from $482.4 billion in Q4 of FY14. On an annual basis, assets rose by $58.3 billion from $434.5 billion. This stood at $436.7 billion in Q2 of FY14 and at $458.9 billion in Q3 of FY14.

As per the RBI data, deterioration in net IIP was due to a sharper spike in the value of foreign-owned assets in the country vis-a-vis the increase in the value of residents' financial assets abroad.

The net IIP measured as financial assets of residents are claims on non-residents and gold/bullion held as reserve assets less financial liabilities of the residents to non-residents. The IIP shows the value and the composition of the financial assets of residents that are claims on non-residents, and gold/bullion held as reserve assets; and the liabilities of residents to non-residents.

On the composition of external financial assets and liabilities, RBI said the reserve assets continued to have the dominant share of 64.2 per cent in the overseas financial assets, followed by direct investment abroad at 26.2 per cent.

The share of direct investment stood at 29.8 per cent, portfolio investment at 24.3 per cent, loans at 21.5 per cent, and currency and deposits at 12.7 per cent. The share of non-debt liabilities rose marginally to 46 percent in Q1 from 45.5 per cent in the previous quarter. SBI to have dedicated SME branches to increase coverage. Commenting on the rise in the external debt, Icra chief economist Aditi Nayar said, ‘Data indicates moderation in vulnerability across a variety of external sector indicators, including external debt as a percentage of GDP, ratio of forex reserves to external debt and short-term external debt by residual maturity as a percentage of reserves.’

She said the marginal rise in short-term debt (by $0.3 billion) indicates that redemption pressure in the immediate term has not intensified. Moreover, forex reserves were enhanced by a substantial $12 billion in the quarter.

The residents’ financial assets abroad rose by $10.4 billion to $492.8 billion as of the June quarter on a quarter-on-quarter basis, as there was an increase in 
reserve assets.

Reserve assets account for over three-fifths of total financial assets, and rose by $11.9 billion to $316.1 billion during the reporting period, according 
to RBI data.

Direct investment abroad rose marginally to $128.8 billion from $128.7 billion, while other investments abroad declined by $1.7 billion to $46.6 billion due to a fall in the stock of currency and deposits and loans.

The outstanding value of currency and deposits fell by $2.2 billion to $15.7 billion, the stock of loans declined by $1.8 billion to $5.1 billion, the apex bank data showed. Meanwhile, foreign-owned assets rose $22.9 billion to $839.3 billion in June as stock of portfolio and direct investments rose. While stock of portfolio investments rose $10.6 billion to $203.7 billion, the stock of direct investments jumped $7.6 billion to $250.3 billion.

Other investment liabilities rose $4.8 billion to $385.3 billion as the stock of trade credit, loans and currency and deposits rose.

The share of debt liabilities in total liabilities declined marginally to 54 per cent at the end of the June 2014 quarter from 54.5 per cent in the preceding quarter. The overseas financial assets-to-liabilities ratio deteriorated to 58.7 per cent from 59.1 per cent a quarter ago.
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