India’s short-term debt soars 21% to $68.5 billion

India’s short-term debt, to be repaid within the next one year, stands at $68.5 billion as on June 30, 2011, according to finance ministry data released on Friday.

That’s up a frown-inducing 21.3% over year and 5.4% over the quarter — as of March 31, the number was $65 billion - a difference of over Rs17,000 crore.

The numbers, however, aren’t cause for concern yet, aver experts.
“A big part of this will be rolled over by international banks so the final amount to be paid in the near term will be much lower,” said Indranil Pan, chief economist, Kotak Mahindra Bank.

But there is lurking apprehension that the ongoing economic crisis in the developed world will render the global financial sector dysfunctional, affecting capital flows.

“There is a significant gap when there are redemptions but no rollovers of flows due to risk aversion — something we saw from foreign institutional investors (FIIs) a couple of weeks back. That’s why we see considerable volatility and the depreciation bias in the rupee,” said Abheek Barua, chief economist, HDFC Bank.

So, even if 25% of the short-debt doesn’t get rolled over, there could be outflows of $17-18 billion, putting immense strain on the rupee.

The rupee has fallen from 44.42 per dollar on April 5 to 49.54 on September 22, but has since recovered to 48.97.

FII inflows, however, are expected to resume by the end of this fiscal and in the early part of next as appetite for emerging market assets improves.

While that’s expected to improve the exchange rate predicament, those caught on the wrong side can expect pain.

“The ones to be hit are importers with unhedged positions, borrowers who have shifted their liabilities from rupee to dollars without hedge and exporters who oversold receivables,” said J Moses Harding, head of global markets at IndusInd Bank.

However, exporters such as information technology and automakers are seen incurring lower mark-to-market losses through hedging.