10.10 External Debt And International Investment Position
10.10 External Debt and International Investment Position
10.10.1 India’s external debt is compiled on the basis of the recommendations of the Policy Group/Task Force on the External Debt Statistics of India (1992). India’s External Debt Statistics cover borrowings by residents (including the Government sector) from non-residents and are presented under the following seven major categories namely, (a) borrowings from multilateral agencies (excluding IMF), (b) borrowings from bilateral sources, (c) borrowings from the IMF, (d) trade credits, (e) commercial borrowings, (f) NRI deposits, and (g) rupee debt. Long-term debt and short-term debt by original maturity are separately identified in the presentation. Moreover, borrowings from bilateral and multilateral agencies are classified into borrowings by the Government sector and the non-Government sector with further classification into concessional and non-concessional categories. At present, India’s External Debt Statistics could be considered as among the best in comparison with other debtor countries in terms of coverage and transparency. India has adopted the internationally accepted ‘core definition’ of the gross external debt suggested by the International Working Group on External Debt Statistics (IWGEDS, 1988) with necessary country-specific adjustments. Recently, a Technical Group on External Debt (1998) had recommended further data refinements such as increasing the frequency of external debt data dissemination on a quarterly basis, compilation of external debt on the basis of residual maturity and improvements in the coverage of short-term debt. Compilation of the International Investment Position (INIP) statistics in India is done by RBI, based on the Census of India’s Foreign Liabilities and Assets, which is conducted quinquennially, while for the intervening years, annual surveys are conducted.
10.10.2 The data on external debt have, till recently, been disseminated for three reference periods (March, September and December) within five months of the reference date. The data pertaining to end-March are released by RBI in its Annual Report. The time-series data on external debt are also published in the Handbook of Statistics on Indian Economy, brought out by RBI. The data relating to September and December are published in the Economic Survey, Government of India and in India’s External Debt - A Status Report released by the Ministry of Finance. With a view to providing data for all quarters, RBI has published data for the quarter ending June 2000 in the January 2001 issue of the Monthly Bulletin. Henceforth, the data on external debt would be available on a quarterly frequency.
10.10.3 External Debt Statistics reflect the external debt obligations of the country as a whole, i.e., the public sector including Government and private sector. The collection, compilation and publication of India’s External Debt Statistics are the joint responsibility of the Ministry of Finance, Government of India and the Reserve Bank of India. The information is collected through the debtor reporting system and details under different categories of external debt are collected from various sources. A major part of the credit extended by the multilateral and bilateral sources, including bilateral component of export credits and the civilian component of rupee debt, are collected from the Office of the Controller of Aid Accounts and Audit (CAA&A), Ministry of Finance, while the External Debt Management Unit (EDMU) collects data on non-civilian rupee debt. The data on external commercial borrowings (ECBs), NRI deposits, debt owed to IMF and short-term trade credit are maintained by RBI, whereas the data on investments in debt instruments by 100 per cent Foreign Institutional Investors (FII) debt funds are collected from Securities and Exchange Board of India (SEBI). The provisional data involve some degree of estimation, but the data are revised as and when actual data are received. The final data are fairly robust as they are based on the actual transactions. Further, statistics on external debt are presented on the basis of original maturity and they adhere to the international definition of residents with the exception of Non-Resident (Non-Repatriable) [NR(NR)] deposits.
10.10.4 External debt is an integral part of the International Investment Position (INIP), which is the balance sheet of the economy’s external liabilities and assets. External debt is the largest component of external liabilities recorded in the INIP, though its share has been declining. The data for the compilation of INIP are collected by conducting surveys or censuses on the basis of the information received from the identified entities. Schedules have been designed separately for corporate, banking, insurance sectors and financial institutions. India is committed to disseminate the quarterly INIP data from the quarter ending December 2001 by the end of June 2002.
10.10.5 Until the 1980s, most of the external debt of India was incurred on Government account because the external assistance, even to public enterprise or financial enterprise, was invariably channelled through the Government. In the 1980s, external debt was permitted mainly for public sector or through public sector financial intermediaries. It is primarily in the 1990s that private sector debt on commercial terms has gained in importance. Presently, Section 6 of the FEMA, 1999 governs the capital account transactions. Under this Section, Reserve Bank, while granting permission, may stipulate conditions and/or regulations with regard to the transactions under the capital account.
10.10.6 With regard to external debt, dissemination of quarterly data with a time lag of one quarter is under consideration of the IMF as a part of SDDS data category. The proposed sectoral classification of the stock data on external debt as per SDDS requirements is different from what is being used at present. As per the SDDS requirements, the stock of non-government external debt needs to be disseminated for two separate categories for banks and other sectors. The SDDS also requires dissemination of prospective amortisation payments.
10.10.7 While the SDDS prescribes the dissemination of data on the international investment position (INIP), it recognises that this is a new framework and that, at present, only a few countries compile it. Accordingly, subscribers have been given flexibility until the end of the year 2001 to compile and disseminate INIP data. The standard calls for the INIP to be compiled in accordance with the fifth edition of the IMF's Balance of Payments Manual. Assets and liabilities should be classified into direct investment; portfolio investment, showing a breakdown into equity and debt; other investment; and reserves (assets only). A breakdown of liabilities in the form of securities and loans, within-portfolio and other investment, by currency of issue and by original maturity (e.g. short-term, medium-term and long-term) is encouraged in situations where analysis of a country's debt is highly desirable. The IMF requires that data be disseminated on an annual frequency (although quarterly dissemination is encouraged) with a timeliness of two quarters (one quarter encouraged).
10.10.8 Statistics on India’s external debt, though fairly comprehensive, suffer from certain deficiencies. There is no mechanism in place to collect data on suppliers’ credit up to 180 days maturity (the trade-related suppliers’ credit of more than 180 days and buyers’ credit of all maturities require to be approved by RBI and as such there is a proper record of data). This issue was examined by a Study Group on Short-Term Debt (2000) under the aegis of the Monitoring Group on External Debt in the Ministry of Finance. In order to capture the entire amount of suppliers’ credits, the Study Group recommended that the existing floppy-based R-Return reporting may be amended to include an additional field on date of shipment. The difference in the period between the date of shipment and date of payment could be taken as a measure of the period for which trade credits are outstanding. This method could be supplemented by other existing data sources. In addition, surveys on trade finance aimed at major import industries could also provide useful supplemental information.
10.10.9 The data on residual maturity for major components of external debt are available except for NRI deposits. There is, therefore, a need for data on NRI deposits by residual maturity for a comprehensive estimate of external debt by residual maturity. This issue was examined by a Study Group on NRI Deposits (2000) under the aegis of the Monitoring Group on External Debt. The Study Group has recommended introduction of a computerised Comprehensive Single Return (CS Return) for all NRI deposit accounts on the basis of software designed by the Group on the lines recommended by the Working Group on International Banking Statistics (WGIBS). The CS Return would be submitted to the RBI by head offices of banks, after collecting details from their branches on a quarterly basis, which inter alia, would provide information both by original maturity as well as by remaining maturity.
10.10.10 At present, the stock of FIIs investment in debt securities is estimated on the basis of accumulation of flows in the absence of direct data on stocks. The BoP Manual, 5th Edition of the International Monetary Fund (BPM5) recommends that the value of market-traded instruments be recorded on the basis of market prices, in the compilation of both BoP and INIP. Since external debt is a major component of INIP, there is need for uniform treatment of valuation. Amongst the various instruments covered under India’s external debt, data on stock of FIIs’ investment in debt securities will have to be compiled and further valued on the basis of market value. With respect to Government securities it should be possible for RBI to obtain this information. With regard to FIIs investment in non-Government securities, the current system does not enable SEBI to capture such data in respect of privately placed debt unless it happens to be listed on the stock exchanges.
10.10.11 The major deficiency in the mechanism for collecting data for INIP has been the poor and inadequate response to the surveys and censuses from the identified units. While a regular reporting mechanism for stock data on debt liabilities exists, similar arrangements for reporting of stock of non-debt liabilities and private corporate assets are not in place. Another factor is the valuation issue, as the data are reported on the basis of book value instead of at market value.
10.10.12 As regards INIP in the Indian context, the major components of INIP – external debt on the liabilities side and foreign exchange reserves of RBI – are available in a timely manner. Amongst other components of INIP, balances of Indian banks abroad (nostro balances) and balances of foreign banks in India (vostro balances) are also available in a relatively timely manner. In the case of non-debt liabilities, global and reliable estimates of such flows are available on a monthly basis. Since the response to the Census is inadequate and suffers from lags, stocks of such non-debt liabilities can be approximated by superimposing cumulative inflows on benchmark stocks. Similarly, assets of corporates denoting ECB funds held abroad are available on quarterly basis with RBI. As regards assets denoting joint ventures abroad, stocks of such assets can be approximated by superimposing cumulative outflows on benchmark stocks. This process would enable a comprehensive and timely compilation of INIP.
Conclusions and Recommendations
10.10.13 The Commission notes that consequent to the recommendations of the Rangarajan Committee, the Government and RBI have given considerable attention to the issue of assessing and periodically disseminating external debt statistics of India. Thus, data on external debt in a disaggregated manner is disseminated in terms of both foreign currency and Indian rupees.
10.10.14 While the issue of External Debt Statistics has attracted focused attention in the international context in the recent period, the conceptual framework of India’s External Debt Statistics was laid out much earlier by the Policy Group/Task Force on External Debt Statistics in 1992 and reviewed by the Technical Group on External Debt in 1998. India’s External Debt Statistics, at present, are fairly comprehensive and are available on a quarterly basis. Nonetheless, in view of recent developments and particularly the increasing concern over short-term debt and progressive capital account liberalisation, there exists scope for further refinement of External Debt and related statistics, such as International Investment Position (INIP) statistics. On the basis of an overall assessment of the current status of statistics, the Commission recommends that:
As suggested by the Study Group on Short-Term Debt under the aegis of the Monitoring Group on External Debt in the Ministry of Finance, in order to capture data relating to suppliers’ credit up to 180 days, RBI should modify the existing floppy-based R-Return reporting by introducing an additional field on date of shipment. While this information is required for complete coverage of external debt, it would also enhance the coverage of short-term credits in the capital account of the balance of payments (BoP).
The RBI should introduce a computerised Comprehensive Single Return for Non-Resident Indian (NRI) Deposits as suggested by the Study Group on NRI Deposits for compilation of external debt data on residual maturity basis.
The quarterly external debt data are disseminated with a time lag of 5 to 6 months from the reference period. This time lag should be reduced to 3 months, which would also meet the Special Data Dissemination Standards (SDDS) requirement of timeliness.
Steps should be taken by agencies responsible for external debt data [namely, the Controller of Aid, Accounts and Audit, and External Debt Management Unit (EDMU) in the Ministry of Finance and RBI] to provide additional sectoral classification of non-government external debt into banks and other sectors (private and public non-bank enterprises), which would also meet the SDDS requirement of sectorisation.
At present, the stock of Foreign Institutional Investors’ (FIIs’) investment in debt securities is estimated on the basis of accumulation of flows in the absence of direct data on stocks. RBI should take necessary steps to put in place a data collection mechanism for stock data on FIIs’ investment in debt securities at market prices in consultation with Securities and Exchange Board of India (SEBI), FIIs and custodial banks.
The RBI should re-orient its methodology for compilation of data on International Investment Position (INIP) by making increasing use of flow data wherever the stock data are not readily available with a view to generating quarterly data with a time lag of six months, which would meet the timeliness requirement under SDDS of the IMF.