Dollar's rise: A case study of India's borrowings abroad.

In a rather intriguing manner the emerging markets reacted to the Fed hike in unusually happy terms. Take the case of Mumbai Stock Exchange ; it rose on day after  the happy tidings of an anticipated Fed rate hike. The market seemed exuberant despite  the exodus of several preceding days to rise by a whopping 309 points on the news of this rate hike!.  The dollar's rise and the interest rate rise both should be of concern to India; but this was disregarded by some buyers.

Government statistics show that US dollar denominated debt accounted for 60.1 per cent of India’s total external debt at end-September 2014. As on that date,  India’s external debt stock stood at US$ 455.9 billion, recording an increase of US$ 13.7 billion (3.1 per cent) over the level at end-March 2014. The rise in external debt during the period was due to long-term external debt particularly commercial borrowings and NRI deposits. As  at end-June 2015 India’s external debt at end-June 2015 was placed at US$ 482.9 billion. 

The US dollar denominated debt continued to be the largest component of India’s external debt with a share of 58.1 per cent at end-June 2015, followed by Indian rupee (28.4 per cent), SDR (5.9 per cent), Japanese Yen (3.9 per cent) and Euro (2.3 per cent). Of this commercial borrowings were significant as below:

	Due 1 Year	2 years	2-3	More than 3	Total $ Billion
Commercial Borrowings	33.2	29.2	26.3	100.5	189.2

Source: RBI

Ratio of Foreign Exchange Reserves to Total External Debt 73.7

Is there some irrationality in exuberance of the emerging markets, post Fed hike? 

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