Indian exposure to US debt down by $6.3 bn in 2011

Indian exposure to US debt down by $6.3 bn in 2011

India lowered its exposure to the US government's debt by USD 6.3 billion (over Rs 30,000 crore) in 2011, even as a few countries like Japan, France, Brazil and the UK enhanced their holding of US treasury bonds.

As per the latest foreign holding data for the US Treasury Bonds, the debt securities issued by the US government, India ranked as the 18th largest foreign holder of these bonds at the end of 2011, down from 15th a year earlier.

While China remains the largest foreign holder of the US treasury bonds, it has lowered its exposure during 2011. A number of other countries such as Taiwan, Hong Kong, Russia, Luxembourg and Singapore also pared their holdings.

However, Japan, the UK, Switzerland, Canada, Germany, Thailand, Ireland, Belgium and South Korea saw their holdings of the US treasury bonds increase during the year.
At the end of December 2011, India held US treasury bonds worth USD 34.2 billion, as against China's USD 1.1 trillion.

Other major foreign holders include Japan (USD 1.04 trillion), the UK (USD 414.8 billion), Brazil (USD 206.9 billion) and Taiwan (149.2 billion), while Switzerland and Hong Kong also own treasury bonds worth over USD 100 billion.

India's holding has declined from USD 40.5 billion at the end of December 2010, while China's dipped from USD 1,160 billion to USD 1100 billion during the year.

The Indian holding increased during the month of December 2011 by about USD 500 million, but it was on a declining trend for seven straight months prior to that. Between May and November 2011, India's holding fell by about USD 8.4 billion.

The monthly foreign holding data is released by the US Treasury Department with a delay of about one and half months. The data for January 2012 would be released around the middle of the next month.

The Indian holding stood at a record high level of USD 42.2 billion in June 2009.
In India, the US treasury bonds are mostly held by the Reserve Bank, while some financial institutions and foreign branches of Indian banks also hold some of these securities.

RBI holds the US treasury securities as part of its foreign exchange reserves portfolio.
The Indian holding started dipping even before the first- ever sovereign rating downgrade of the US in August last year.

It was widely feared that many of the US treasury investors, including foreign entities, would cut their holdings after the downgrade by credit ratings agency S&P. It had cited reasons like inadequate steps by the US to contain ballooning debt for taking the historic action.

Soon after the downgrade, the total debt of the US had moved close to USD 15 trillion and currently it stands at about USD 15.5 trillion. Out of this, the US owes nearly USD 4.7 trillion to foreign countries that hold US Treasury bonds.

The seven-month decline in India's US debt holding between May-November 2011 is the longest ever falling streak.

Some experts pointed out that India had been increasing its exposure till the initial months of 2011 on the pretext that the US debt bonds were one of the most secure from default risks.

They said that the subsequent decline could be due to some profit-booking by Indian entities, as also because of churning in their portfolio as any impact of the US credit ratings downgrade would be visible only from August onwards.

While an exposure of USD 34.2 billion is a substantial figure from Indian context, this accounts for less than 0.3 per cent of America's total debt and below 1 per cent of its total foreign debts.

In fact, the Indian exposure is lower than 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 over USD 200 billion in past one year, while China has increased its exposure by about USD 50 billion during this period.