Changing Scenario of Foreign Trade of India with special reference to External Debt: Causes and Government Initiatives

Abstract

The paper explores how India's foreign trade has changed, with a focus on its external debt. It finds that India's trade is showing strong growth in the service sector, backed by solid foreign exchange reserves. India faces challenges in its international debt, including higher borrowing costs and lower credit ratings because of a high debt-to-GDP ratio. The country also struggles with larger repayment costs due to a weakening rupee and high global interest rates. Significant interest payments could put pressure on public finances, and over-reliance on foreign funds may lead to financial crises. These issues reduce funds available for development, slow economic growth, and make the country more vulnerable to external shocks, affecting investor confidence and overall economic stability. Recent trends show positive growth in total exports, especially in services, along with rising foreign direct investment. The external debt is mostly in US dollars and is well-supported by reserves, helping to maintain stability even with global challenges. In the past, government borrowing was the main source, but the 1990s brought more private sector debt, which is regulated by the Foreign Exchange Management Act of 1999. Even with the rise in debt, India's large foreign exchange reserves offer a high coverage ratio, reflecting strong stability in the external sector. Therefore, there should be proper monitoring the external debt so that the debt should not be a burden for the country.