The government is unlikely to push for a large-scale neutralisation of high cost debt this fiscal, after having completed over a $3 billion debt swap in the last fiscal.
Interest rates in the international money market are gradually hardening, and the basket of the high cost external loans with the government, has also depleted. As a result, the government seems to have lost the appetite for cutting down the same with a similar vigour as was evident in 2003-04.
There is of course no policy on the issue, but finance ministry officials say that the debt swap is a part of the treasury management tool that they employ.
Budget 2003 had said the government would "proactively liquidate the relatively higher cost component" of the country's external debt portfolio.
The debts that the government undertook to pre-pay, were largely those taken from multilateral institutions, including the Asian Development Bank and the World Bank.
Since the two institutions have a large portfolio in the country, they were unable to refuse the same. These included World Bank currency pool loans taken at an average rate of interest of just above 5 per cent.
The ministry also announced that it was formally breaking the country's dependence on bilateral external aid. Other than the multilateral agencies, the Centre decided that it would not accept aid from any of the bilateral donors, except Japan, United Kingdom, USA and Russia.
Finance Minister Jaswant Singh had said the government would like the smaller aid partners to channellise their aid to non-governmental organisations, since the Centre did not need such funds any more.
As part of the package, the government has also promised to consider a debt relief package for the heavily indebted poor countries. India also became a donor in the IMF pool, lending to Brazil and Indonesia.
In the current fiscal, the rate of growth of foreign exchange has dipped. The difference in interest rates between here and abroad has also narrowed.
Officials said there was a need a for a breathing space before fresh swaps could be undertaken.
In fiscal 2002-03, too, the government had prepaid about $3 billion worth of foreign loans from the Asian Development Bank and the World Bank. The government set a tentative target of prepaying about $9 billion of foreign loan in fiscal 2003-04.
The ministry had accordingly gone in for an additional domestic borrowing of about Rs 14,000 crore (Rs billion) to finance the debt buyback from ADB and the World Bank.
More give than take
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