The current account deficit (CAD) is financed by capital account surplus and drawdown of foreign exchange reserves in case CAD exceeds capital account balance. Capital flows include both equity and debt. Equity comprises foreign direct investment and portfolio investment while debt flows include external commercial borrowing, external assistance, banking capital and short-term trade credit etc. In recent times, CAD was financed by the capital account surplus except in 2011-12 ( upto December 2011), when higher CAD led by trade deficit and moderation in capital inflows, resulted in drawdown in foreign exchange reserves.
India’s total external debt stock at end-December 2011 was US$ 334.9 billion, reflecting an increase of US$ 11.0 billion (3.4 per cent) over end-September 2011 level of US$ 323.9 billion. The rise in debt stock was mainly due to higher external commercial borrowings and short-term debt.
This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in Rajya Sabha today.