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24-12-2023
Bureau Report + Agencies
NEW DELHI: The Indian government has said that the International Monetary Fund’s (IMF) projection of the country’s debt exceeding 100 percent (%) of the GDP by 2027-28 is “misconstrued”.
The Finance Ministry said the IMF projection was “a worst-case scenario and is not fait accompli”.
In its Article IV review, the IMF said that India’s general government debt, which includes federal and state government debt, could be 100% of GDP under adverse circumstances by fiscal 2028.
India’s debt to GDP ratio, which was 81% in 2022/23, may decline to below 70% in the same period under favorable circumstances, the IMF report said.
As per the Article IV report, while the budget deficit has eased, public debt remains elevated and fiscal buffers need to be rebuilt.
“It is also noteworthy that the same report indicates that under favorable circumstances, the general government debt to GDP ratio may decline to below 70 per cent in the same period.
“Therefore, any interpretation that the report implies that general government debt would exceed 100 per cent of GDP in the medium term is misconstrued,” the ministry said on Friday.
Further, the ministry said the general government debt (including both state and centre) has steeply declined from about 88 per cent in FY 2020-21 to about 81 per cent in 2022-23, and the Centre is on track to achieve its stated fiscal consolidation target to reduce fiscal deficit below 4.5 per cent of GDP by FY 2025-26.
“The states have also individually enacted their fiscal responsibility legislation, which is monitored by their respective state legislatures.
“Therefore, it is expected that the general government debt will decline substantially in the medium to long term,” it said.
The Finance Ministry further said it is important to note that general government debt in India is overwhelmingly rupee-denominated, with external borrowings from bilateral and multilateral sources contributing a minimal amount.
“This has been highlighted in the IMF Report. Domestically issued debt, largely in the form of government bonds, is mostly medium or long-term with a weighted average maturity of roughly 12 years for central government debt. Therefore, the rollover risk is low for domestic debt, and the exposure to volatility in exchange rates tends to be on the lower end,” it said.
Fitch Ratings expects India to be among the world’s fastest-growing countries, with resilient GDP growth of 6.5 per cent in 2024-25. For the current financial year 2023-24, it pegs GDP growth at 6.9 per cent.
“Demand will remain strong for cement, electricity and petroleum products, with high-frequency data in 2023 sustained at well above pre-Covid-19 pandemic levels. India’s rising infrastructure spending will also boost steel demand. Car sales will continue to rise, despite our expectation of moderation after robust growth in 2023,” Fitch said in a report on Friday.
