Question 80 from UPSC CSE 2019 - Economics

Question

Consider the following statements:
1. Most of India's external debt is owed by governmental entities.
2. All of India's external debt is denominated in US dollars.
Which of the statements given above is/are correct?

IASCODEX · Accepted Answer

Correct Option: D. Neither 1 nor 2

Strategy: First, recall that commercial borrowings and private sector debt make up the largest share, so most of India's external debt is not owed by government entities—eliminating Statement 1. Statement 2 uses the absolute term 'All,' but India's external debt is in multiple currencies—so Statement 2 is also incorrect. Both statements are false, leading to option D.

Key Info: India's external debt represents the total outstanding debt that residents (government, private sector, corporations) owe to non-residents, repayable in foreign currency, goods, or services. As per the annual 'Status Report on India's External Debt' (by Ministry of Finance), the composition of India's external debt includes commercial borrowings, NRI deposits, short-term trade credit, multilateral and bilateral borrowings, and rupee-denominated non-resident deposits.

- Commercial borrowings (such as those by private corporates and public sector undertakings) are the largest contributor, typically holding over one-third (often nearing 37-40%) of the total external debt. 
- Non-resident Indian (NRI) deposits and short-term trade credit together also form a substantial portion of the external debt stock. 
- Governmental (sovereign) external debt, which includes loans from multilateral and bilateral agencies, IMF, and sovereign bonds, is less than half of the total and often significantly less than that.

Currency Composition:
- The US dollar is the single largest denomination (approximately 45-55% in recent years), but not all external debt is in US dollars. 
- The debt is also denominated in Indian rupee, special drawing rights (SDRs), Japanese yen, euro, and other currencies. 
- This multi-currency structure helps in managing risks related to currency fluctuations.

Absolute statements such as 'all' or 'most' demand caution in UPSC questions. India's external debt is a mixed liability owed predominantly by non-government sectors and in various currencies, not exclusively by the government or in US dollars.

IASCODEX · Answer

Option A: 1 only

IASCODEX · Answer

Option B: 2 only

IASCODEX · Answer

Option C: Both 1 and 2

Consider the following statements: Most of India's external debt is owed by governmental entities. All of India's external debt is denominated in US dollars. Which of the statements given above is/are correct?

Consider the following statements:

Most of India's external debt is owed by governmental entities.

All of India's external debt is denominated in US dollars.
Which of the statements given above is/are correct?