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Lessons-from-Indias-debt-crisis.

Last updated: September 17 2014
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  • Lessons-from-Indias-debt-crisis.

    Lessons from India’s debt crisis

    India’s external debt figures are also worrying. According to the annual report of the Reserve Bank of India (RBI), India’s external debt-to-GDP (gross domestic product) ratio rose 1.3 percentage points to 23.3% in the year ending March 2014 over the previous year. Short-term debt (by residual maturity) as a proportion of overall debt was 40%, as of March. It is likely that the level of external debt has gone up in the current fiscal year owing to an overseas borrowing binge by companies. Many of these firms, particularly in the power and utilities sector may not have hedged their positions adequately, posing systemic risks, a recent report by the Bank of International Settlements warned. Both India’s domestic and external debt vulnerabilities are concentrated in a handful of large conglomerates in the power, materials, and infra sectors which expanded at breakneck speed during the boom years. It does not appear to be a coincidence that many of these firms are politically connected, and that the bulk of the bad debt burden has been shouldered by state-owned banks, which have been vulnerable to manipulation by New Delhi. But cronyism is only one reason for the bad debt problem. Regulatory forbearance in the immediate aftermath of the great financial crash in 2008 is also to blame, since such forbearance merely postponed the day of reckoning for indebted firms and hid the true leverage levels.

    Lessons from India’s debt crisis - Livemint

    India requires to make industry more viable and not dependent on government help or forbearance all the time.
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