India faces Rs 1.83 lakh crore exposure to U.S. debt

As one of the 15-largest foreign creditors to the U.S., India’s exposure to the United States’ ballooning debts is estimated at USD 41 billion — higher than the money America owes to countries like France and Australia.

The overall national debt of the U.S. is moving nearer to USD 15 trillion, out of which it owes over USD 4.5 trillion to foreign countries holding the U.S. government debt securities.

While China is the single-largest holder of the U.S. treasury securities with USD 1.15 trillion, India stands at 14th position with USD 41 billion (about Rs 1.83 lakh crore), as per the US Treasury Department.

The unprecedented debt downgrade of the U.S. from the top-notch ‘AAA’ level by Standard and Poor’s might also lead to an immediate action by Reserve Bank of India, which allows holding of government debt securities of countries with mostly a ‘Triple-A’ rating.

While a vast majority of the USD 41 billion portfolio is owned by RBI itself, some Indian banks also might have some exposure, sources said.

They said that the RBI was most likely to allow holding of the US securities even with a notch-lower rating, as it has been itself amassing the US treasury securities over the past one year despite a deepening debt crisis there.

The Indian holding has grown by about USD 10 billion in the past one year, the U.S. Treasury data shows.

The RBI holds the US treasury securities as part of its foreign exchange reserves and the dollar holdings account for about 10 per cent of its total portfolio.

Some experts pointed out that India has been increasing its exposure on the pretext that the US debt bonds were one of the most secure from default risks.

However, the U.S., which was on the brink of defaulting on its debt obligations last week, was saved by way of a last-minute deal reached by President Barack Obama to raise the country’s USD 14.3 trillion borrowing ceiling.

Rating agency S&P, which has based its downgrade of the country’s rating on the political opposition to the government plans to fight the debt problems, has termed the rescue plan as inadequate to tackle the U.S. debt situation.

While an exposure of USD 41 billion is a substantial figure from Indian context, this accounts for less than 0.3 per cent of the U.S.’ total debt and just about 1 per cent of its total foreign debts.

In fact, the Indian exposure is equivalent to an estimated USD 40 billion worth treasury bonds held by one single entity, Warren Buffett-led Berkshire Hathaway.

The overall foreign holding of the US government securities has grown by about USD 500 billion in past one year, while China has increased its exposure by about USD 300 billion during this period.

Among top foreign creditors, China is followed by Japan (USD 912 billion), the UK (USD 346 billion), Brazil (USD 211 billion), Taiwan (USD 153 billion), Hong Kong (122 billion), Russia (USD 115 billion), Switzerland (USD 108 billion), Canada (USD 91 billion), Luxembourg (USD 68 billion), Germany (USD 61 billion), Thailand (USD 60 billion), Singapore (USD 57 billion) and India (USD 51 billion).

Countries with lower exposure than India include Turkey, Ireland, South Korea, Belgium, Poland, Mexico, Italy, Netherlands, France, Philippines, Norway, Sweden, Colombia, Israel, Chile, Egypt, Malaysia and Australia in the respective order.