India among small set of countries able to reduce core debt of corporate sector: Report
Mar 21, 2023
New Delhi [India], March 21 : India is among a small set of countries that have been able to reduce their debt burden when it comes to core debt of the corporate sector in the aftermath of the Covid-19 pandemic, according to Monthly Economic Review February 2023 of the Department of Economic Affairs.
The report said while comparing the core debt of the corporate sector in both advanced economies (AEs) and emerging market economies (EMEs), it increased in both categories, reaching 175 per cent of GDP in EMEs and 185 per cent of GDP in AEs at the end of 2020. The data on the core debt of the corporate sector was collected by the Bank for International Settlements (BIS).
The report, which was released on Monday evening, said this was a result of the banking sector's balance sheet clean-up and the corporate sector's deleveraging exercise undertaken over the last decade. India's relatively lower debt burdens will help limit the impact of financial contagion that may arise as rising borrowing costs trigger debt sustainability concerns.
The BIS data allows for an analysis of the core debt of the corporate sector across a large set of countries and country groupings.
In the context of the current monetary tightening cycle, the report said it was useful to compare the latest core debt as a percentage of the GDP of this sector across countries with their values in the quarter ending September 2008.
According to the report, trends in India's corporate core debt since the pandemic indicated a healthy recovery from a one-off shock.
India's corporate sector debt began increasing a year before the outbreak of the Covid-19 pandemic and reached its peak at the beginning of 2021.
During the pandemic, the monthly report said corporates were forced to borrow more to keep operations running, and some businesses were compelled to invest in technology to support remote work, supplemented by the pandemic's economic response and loosening financial conditions further pushed the debt levels higher still.
On a sectoral level, as per a study by Insolvency and Bankruptcy Board of India (IBBI), financial stress in the manufacturing sector increased the most, followed by 'hotels and restaurants', real estate, construction and electricity, it added.
However, the debt ratio has witnessed a declining trend since mid-2021, the report said, adding the same is reflected in the improvement in the debt service ratio of the corporate sector.
The improvement is mainly due to a steady recovery from the economic effects of the pandemic-induced lockdowns. Companies catered to pent-up demand emanating in the course of the recovery and were able to service their debts.
