The Centre has refuted the assessment of the International Monetary Fund’s assessment that India’s general government debt could be 100 per cent of the country’s GDP under adverse circumstances by fiscal 2028. General government debt includes debt of both the Centre and the state governments.
In its latest Article IV consultations with India, the IMF warns that “given the shocks that India has experienced historically, and instances of fiscal slippages between 2000 and 2020, the baseline carries the risk that, should similar shocks materialize, debt would exceed 100 per cent of GDP in the medium term.
The Indian Government has, however, countered the view as “certain presumptions made taking into account possible scenarios that does not reflect factual position”, describing it as a worst-case scenario and not fait accompli”. General government debt in India is overwhelmingly rupeedenominated, 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, India’s Finance Ministry has stated.
Notwithstanding the global shocks experienced this century by India — financial crisis, taper tantrum, COVID-19, Russia-Ukraine War, etc – which also uniformly affected the global economy with few remaining unaffected — a cross-country comparison shows that India has done relatively well and is still below the debt level of 2002, the Finance Ministry added.
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). Besides, 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. The Government observes that similar IMF reports for other countries show much higher extreme scenarios for them. The corresponding figures of ‘worst-case’ scenarios for the USA, UK and China are about 160, 140, and 200 per cent, respectively, which is far worse compared to 100 per cent for India.
Quoting the report’s suggestion that under favourable circumstances, the general government debt to GDP ratio may decline to below 70 per cent in the same period, the Finance Ministry advises that any interpretation that implies general government debt would exceed 100 per cent of GDP in the medium term should not be misconstrued.