India is developing nation which is steadily progressing on planned track of development. India is continuously facing some basic hurdles .i.e. External Debt, Poverty, Excessive population, etc. however we belong to the country having sufficient and appropriate resources but as we know “A money in saving account is immaterial until it Invest”.
We are facing the crucial issue of debt weather internal or external, almost unable to manage it despite of having sufficient resources. External Debt of India is steadily increasing as the age of India.
India’s external debt stock stood at US$ 485.6 billion at end-March 2016 as against US$ 475.0 billion at end-March 2015. While external debt has increased by 2.2 percent during 2015-16. External debt of the country continues to be dominated by long term borrowings. The external debt-GDP ratio was 23.7 per cent at end-March 2016, as against 23.8 per cent at end March 2015. In last year, External debt has been increased by more than twice as US$ 172.40 billion in March, 2007 to US$ 485.6 billion in March, 2016.
India’s position was third in terms of absolute external debt stock, after China and Brazil in 2014. Gross debt service payments amounted to US$ 44.3 billion during 2015-16, recording an increase of 4.5 per cent over the previous year. India is paying more interest due to low rating by international agencies. Standard & Poor Credit Rating for India is BBB-.
The problem of debt is not limited to external debt. Debt structure of the Indian companies is so rigid. Most of companies are failed to manage their debt portfolio. Companies are unable to manager Debt-Equity Ratios. Due to excess debt than their capacity to serve, they are bound to bear heavy finance cost. Especially PSUs companies are facing debt issue due to underutilization of resources, poor management, backward technologies, etc. Poor management is humble issues in growth of government companies. Let’s compare two companies one from government sector and one from public sector. TATA Steels Limited and Steel Authority of India are highly reputed companies of India; both are engaged in steel industry. During financial year 2015-16 turnover of the SAIL and TATA Steels is Rs. 39646.55 Lakhs and Rs. 40,375.52 Lakhs respectively. However TATA Steels has achieved high profit before tax of Rs. 6,126.52 Lakhs while SAIL has faced loss of Rs. 7007.50 Lakhs.
Debt has become crucial component of financial structure of any company. Major companies including Reliance Communication, Bhushan Steel, Jindal Steel, Jaypee Infratech, Videocon Industries, Jet Airways, SAIL, BHEL, Spicejet, are facing high finance cost and as a result all are suffering loss. EBITA of major companies including above are positive but after deduction of finance cost, its converts into high loss.
Financing through Debt to company may be considerable if, Return on Investment is higher than Cost of Debt to Company.
-Bhupender Sehwaliya
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