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Rupee Denominated Debt

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Rupee denominated debt refers to that part of India’s total external debt that is denominated in India’s domestic currency, the Rupee.

In contrast to foreign currency denominated external debt, in case of rupee denominated debt the currency risk (the risk arising from appreciation or depreciation of the nominal exchange rate) is borne by the creditor and not by the borrower. The contractual liability (principal and interest that is designated to be paid by the borrower as agreed upon in the debt contract) is settled in foreign currency. Accordingly, the borrower always pays back the foreign currency equivalent of the rupee denomination valued at the spot exchange rate prevailing at that point in time. Thus, if the domestic currency appreciates vis-à-vis the foreign currency, the creditor stands to gain vis-à-vis the borrower since he receives more dollars per unit of Rupee.

In India rupee denominated debt comprises the following categories;

(a) Rupee Debt; Includes the outstanding defense and civilian state credits extended to India by the erstwhile Union of Soviet Socialist Republics (USSR). The repayment is primarily through exports of goods to Russia.

(b) Rupee denominated Non-Resident Indian (NRI) Deposits including the Non-Resident (External) Rupee Account (NR(E)RA) and Non-Resident Ordinary Rupee (NRO) account.

(c) Foreign Institutional Investors (FII) investment in Government Treasury-Bills and dated securities (with such investments subject to a ceiling of US$ 10 billion annually); and

(d) FII investment in corporate debt securities (with such investments subject to a ceiling of US$ 40 billion annually).

The Quarterly Reports on India’s external debt published by the Ministry of Finance and the RBI as well as the Annual Status Report on India’s external debt (published by the Ministry of Finance) available in the website contain information on India’s rupee denominated external debt.

At end-March 2011, 19.5 percent of India’s total external debt and 12.4 percent of India’s sovereign external debt is denominated in rupees. The difference in the two figures is accounted for by the fact that the former encompasses all the four categories ((a) to (d)) listed above while the latter takes into account only (a) and (c).

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