The finance minister seems to be more concerned about the fiscal deficit. Why is there no mention about external debt?
The finance minister is correct in concentrating on the fiscal deficit as it is a more immediate threat to economic stability. The combined fiscal deficit of central and state governments now amounts to nine per cent of GDP. This is clearly unsustainable and could eventually push the country into an `internal debt trap'. By contrast, most measures of external indebtedness have shown steady improvement during the last decade. The outstanding debt-GDP ratio is now 22.3 per cent compared to 41 per cent in 1991-92. The debt service to current receipts ratio is now at 18.2 per cent compared to 35 per cent a decade ago. Overall, the external situation appears to be within manageable limits.

How will the government cope with the repayment of US $99 billion worth of debt?
The overall size of external debt may be large in absolute terms but the above discussed measures of indebtedness suggest that India is a moderately indebted country rather than a highly indebted country. The repayment of external debt is, therefore, not a very central concern for the government.

First, the repayment is not entirely the government's responsibility as it also includes private sector debt. Second, the maturity profile of the debt is quite benign, only about five per cent of external debt is short-term in nature.

As long as the current account deficit remains below two per cent of GDP, capital inflows should be able to provide enough foreign exchange to service debt.

How will the government tackle the problem where the debt is dollar-denominated while the Rupee is depreciating?
Rupee depreciation is always taken into account when taking on external debt. This is the price to pay for getting funds at the lower interest rates prevailing internationally. Thus, there is no reason for concern as long as the rate of depreciation is not very rapid. In recent years, the rate of depreciation has been gradual enough to allow those with international debt to absorb the shock. We do not envisage a crisis because of the steady depreciation of the Rupee.

The government has committed to repay a major part of the debt in coming years. How will the government source the required funds?
I do not think there is any immediate need to pay off a major part of the external debt. As existing debt matures, new debt will be taken on. This is normal and sustainable as long as the economy is growing and its ability to service debt is increasing.

The last decade did not see a fall in external debt but the country's ability to service debt improved dramatically following reforms. This is the factor that has led to improved debt ratios.

Thus, the government need not actively try to pay off external debt unless it genuinely feels that external debt is very expensive compared to domestic debt.

Where is the major part of debt flowing? Is it contributing to growth?
During the Eighties, most of the debt was appropriated by the government or the public sector. This has changed somewhat in the Nineties although the government or the public sector still accounts for a major portion of the outstanding debt. It is very difficult to quantify its exact contribution to growth, but my impression is that it is better than in the pre-liberalisation era. It is unclear whether externally-funded projects did better or worse.