Search the Internet          Tips  Sites: Finance, Investment

Freed NRI deposits to raise debt by $8 bn

Subhomoy Bhattacharjee

The Centre's decision to make all non-resident Indian deposits fully convertible has, in one stroke, bloated the country's external debt to $108 billion from $100.3 billion at present.

The $8 billion addition to the debt is more than the $7.6 billion rise between 1994 and 2001. Finance Minister Yashwant Sinha announced the decision on the Budget. With this change, short-term debt as a part of the total external debt will exceed 4.5 per cent, compared to 3.5 per cent at present.

The Centre has decided to make the Non-Resident (Non-Repatriable) Deposit and the Non-Resident (Special) Rupee Account fully convertible.

This means that along with the interest, the principal in these accounts can also be repatriated.

The government will soon set up a committee comprising officials of the finance ministry and the Reserve Bank of India to work out the modalities of the transfer of the schemes to the same status as Foreign Currency Non-Resident (Bank) deposits and Non-Resident (External) Rupee Account, which are fully repatriable.

Sources said the move to include the deposits under external debt was a reflection of the government's comfort with the foreign exchange reserves, which have touched $53 billion.

The change is also in line with international practices. While the Centre has been publishing the $100-billion figure as its total external debt, financial institutions abroad have been adding up all such deposits, repatriable or not, in their calculations. The move, therefore, only corrects a mismatch.

But analysts said the government would have to be somewhat more cautious about the impact of these changes because bank deposits tend to be volatile.

Since the largest component of the new debt is going to be Non-Resident (Non Repatriable) Deposits - term deposits ranging from 6 months to three years whose corpus was around $7 billion in March 2002 - the debt composition is not expected to become too liquid.

Besides, the Centre is of the opinion that its experience with Foreign Currency Non-Resident (Bank) deposits shows there is not much reason to be so conservative because these accounts are rupee-denominated.

The shift will also result in the corpus of the non-resident debt rising to $23 billion, which is 21 per cent of the total external debt.

Powered by

ALSO READ:
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report