15.4       ndian    onom
     are unavoidable costs. The returns from rupee                 assessing liquidity requirements to service
     assets are much lower compared to returns from                them (within a year).
     dollar assets. But RBI is not into investment                 International comparison of external debt
     management, it is there to maintain stability in              situation based on World Bank data shows
     the system.                                                   that among the top 20 developing debtor
          In August 2014, RBI chief Raghuram Rajan                 countries in 2016, India’s external debt
     agreed foreign exchange reserves came at a cost.              stock to Gross National Income (GNI)
     India earns next to nothing for the foreign reserves          ratio at 20.4 percent was the second lowest
     it holds—actually, this way India finances another            after China’s 12.8 per cent. In terms of
     country when it has a significant financing needs.            the foreign exchange reserves cover to
     It is very difficult to state the level of reserves           external debt, India’s position is the fifth
     considered adequate by RBI. Though there are                  highest and India’s debt service rate is the
     costs involved, the costs to benefit cannot be                eight lowest. As per the World Bank data,
     quantified by any model. Globally, there has been             though India is the third largest debtor
     no study on the adequacy of reserves. In such an              country among developing countries
     environment, RBI will have to go by experiences.              (after China and Brazil), India’s share of
                                                                   short-term debt to total debt is only 18.6
        external Debt                                              per cent (by end-June, 2017) compared
                                                                   to 60.1 per cent for China (end-June,
     As India started managing its balance of payment              2017).
     in a more prudent way after the reform period, its
     external debt position has also improved in a big
                                                             fixeD currency regime4
     way. Major features (as per the Economic Survey
     2017-18) of its external debt position during        A method of regulating exchange rates of world
     2017-18 (March-September) are given below:           currencies brought by the IMF. In this system
              By September 2017, India’s total external   exchange rate of a particular currency was fixed
              debt was at US$ 495.7 billion (5.1 per      by the IMF keeping the currency in front of a
              cent higher to the position of March,       basket of important world currencies (they were
              2017).                                      UK£, US $, Japanese ¥, German Mark DM and
              Long-term debt share was 81.3 per cent      the French Franc FFr). Different economies were
              (5 per cent increase) while the short-      supposed to maintain that particular exchange
              term debt was 18.7 per cent (5.4 per cent   rate in future. Exchange rates of currencies were
              increase).                                  modified by the IMF from time to time.
              Share of Government (sovereign) debt in
              total debt was 21.6 per cent (19.4 per cent
                                                             floating currency regime5
              increase).                                  A method of regulating exchange rates of world
              Forex cover to total external debt          currencies based on the market mechanism (i.e.,
              improved to 80.7 per cent (from 78.4 per    demand and supply). In the follow up to the fixed
              cent).                                      currency system of exchange rate determination,
              The ratio of short-term debt was 41.7 per      4.  Ibid., pp. 610–11.
              cent (from 41.5 per cent). Having idea of      5.  Ibid., pp. 611–15.
              this part of the external debt is useful in