India can cheer its low debt, but here’s the catch

livemint.com:

reassuring, but external debt is only one part of our external liabilities. For a full picture of what India owes to foreigners, it is more useful to track India’s international investment position (IIP), which shows the stock of international financial assets and liabilities at a point in time. On the assets side, IIP includes all foreign financial assets that Indians own, including international reserves held by the central bank.

Liabilities consist of domestic assets that foreigners own: direct and portfolio investment into India and external debt such as bonds, loans, deposits, trade credit. The difference between them is called the net international investment position (NIIP). India’s foreign liabilities exceed its foreign assets, so its net international position is negative (i.e., net in debt).

Between 2003 and 2023, this net liability went up from $60 billion to $396 billion, rising from 9.9% to 11.1% of GDP. A comparison with other G20 countries puts this in perspective: the US is the most indebted, Japan is the largest creditor, and India is somewhere in the middle. NIIP is closely linked to current account flows (overall flows into and from a country due to trade, remittances and financial transactions).

Consistent deficits here lead to negative or lower NIIP (India, US), because they have to be made up by acquiring capital liabilities in the form of foreign capital inflows. Net exporting nations have higher NIIP (Japan, South Korea, Saudi Arabia), as they use their trade surplus to buy foreign assets. A country’s international investment position is in some ways its balance sheet with the rest of the world.