UPSC Prelims 2019 Q63: Indian Economy – External Sector & Balance Of Payments
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (d) Neither 1 nor 2
Explanation
India's External Debt: Composition
| Statement | Claim | Verdict | Detail |
|---|---|---|---|
| 1 | Most external debt owed by governmental entities | FALSE | The private sector (non-financial corporates, banks, NBFCs) accounts for over 50-60% of India's external debt through ECBs, trade credit, NRI deposits etc. Governmental component (sovereign debt) is smaller. |
| 2 | All external debt in US dollars | FALSE | India's external debt is denominated in multiple currencies - USD (dominant, ~55%), INR, JPY, EUR, SDR and others. Not all USD. |
Both statements are wrong. Answer: (d) Neither 1 nor 2.
Answer: (d) Neither 1 nor 2.
Why each option is right or wrong
- (a) Incorrect. Private sector owes more of India's external debt than the government.
- (b) Incorrect. External debt is multi-currency, not all USD.
- (c) Incorrect. Both statements are wrong.
- (d) CORRECT. Neither statement is true - private sector dominates external debt composition, and denomination is multi-currency (USD ~55%, plus INR, JPY, EUR, SDR).
Key point
India's external debt: Private sector > Government share. Currency: USD ~55% dominant, but also INR, JPY, EUR, SDR. NOT sovereign-only, NOT USD-only.
Remember
Both statements are wrong. Most of India's external debt is owed by the PRIVATE SECTOR (commercial borrowings, NRI deposits, trade credit) - not governmental entities. And India's external debt is denominated in multiple currencies (USD ~55%, INR, JPY, EUR, SDR) - not all in US dollars.
Common mistakes
- Assuming government is the main borrower externally - private sector is larger via ECBs and NRI deposits.
- Assuming all external debt is USD - India encourages INR-denominated 'Masala Bonds' too.
- Not knowing NRI deposits are a substantial component of external debt.
Exam tip
India's external debt composition (recent): Commercial borrowings (~40%), NRI deposits (~20%), Short-term debt (~20%), Multilateral (~10%), Bilateral (~5%). Currency: USD ~55%, INR ~30%, SDR ~5%, JPY ~5%, EUR ~3%.
Sources
- RBI - India's External Debt: Status Report (annual)
- Ministry of Finance - External Debt Statistics