UPSC Prelims 2002 Q36: Indian Economy – External Sector & Balance Of Payments
India's external debt increased from US $98,158 million as at the end of March 2000 to US
$100,225 million as at the end of March 2001 due to increase in
- (a) multilateral and bilateral debt
- (b) rupee debt
- (c) commercial borrowings and NRI deposits
- (d) borrowing from International Monetary Fund
Answer: (c) commercial borrowings and NRI deposits
Explanation
Reason for the rise in India's external debt, March 2000 to March 2001
| Component | Trend in 2000-01 |
|---|---|
| NRI deposits | Rose to about US $16.6 billion from US $13.6 billion — a major push after the India Millennium Deposits |
| Commercial borrowings | Rose to about US $24.4 billion |
| Multilateral and bilateral debt | Declined or stayed flat as repayments exceeded fresh loans |
| IMF borrowing | Nil; India had no IMF drawings then |
India's external debt rose from US $98,158 million to US $100,225 million, a rise of about US $2 billion. The rise came from commercial borrowings and NRI deposits, while multilateral and bilateral debt did not increase, rupee debt fell and there was no IMF borrowing. The stored key (a) is wrong.
Answer: (c) commercial borrowings and NRI deposits.
Why each option is right or wrong
- (a) Incorrect. The stored key is wrong; multilateral and bilateral debt did not rise.
- (b) Incorrect. Rupee debt (to the former USSR) was falling.
- (c) CORRECT. Commercial borrowings and NRI deposits rose.
- (d) Incorrect. India took no fresh IMF borrowing in 2000-01.
Key point
External debt end-March 2001: about US $100.2 bn, with short-term debt small and the debt-GDP ratio near 22.5%.
Remember
2000-01 rise in debt came from commercial borrowings and NRI deposits.
Common mistakes
- Trusting the stored key and choosing multilateral and bilateral debt.
- Counting rupee debt as a rising component.
- Assuming IMF loans were taken in 2000-01.
Exam tip
Debt rose when the capital account flows (NRI, ECB) rose; official debt was falling.
Sources
- RBI — India's External Debt, end-March 2001
- Economic Survey 2001-02