India Inc’s Rising Cost of External Capital

India needs external capital to grow. This has been true since the early years of Central planning following independence when India relied on external debt raised mostly by its Central and state governments from foreign governments and multilateral agencies (like the World Bank). Until the liberalisation of the economy in 1991, few Indian companies were able to do so. In the 1990s, these companies finally began to raise external equity and debt capital, mostly through Global Depositary Receipts (GDRs) and Eurobonds. After the first Indian companies were listed on stock exchanges in the United States in 1999, equity funding took the form of American Depositary Receipts and Foreign Portfolio Investment. In parallel, Indian companies raised debt through External Commercial Borrowing (ECB), mainly in Eurobond markets.

Since then, the ratio of external debt to GDP has grown steadily and touched around 20 per cent ($563.9 billion) in March 2020. Of this, a large fraction (38.8