In response to the International Monetary Fund\’s cautionary remarks about purported vulnerabilities in India\’s government debt, the Central government asserted on Friday that certain assumptions made do not accurately represent the current situation.
The finance ministry emphasized a crucial point that a majority of India\’s general government debt, covering both the Centre and states, is in rupees, and external borrowings constitute only a small fraction. The ministry highlighted the low rollover risk for domestic debt.
During the Article IV consultations with India, the IMF suggested that, under adverse shocks, the country\’s general government debt could reach a debt-to-GDP ratio of 100% by FY 2028. The ministry clarified that this extreme possibility was presented in a context similar to a \”once-in-a-century Covid-19\” scenario and was one of several scenarios, both favorable and unfavorable, listed. It stressed that, in this instance, the IMF was discussing a worst-case scenario, and it is not a predetermined outcome.
The finance ministry also observed that IMF reports for other countries outlined much higher extreme scenarios, with figures of 160% for the US, 140% for the UK, and 200% for China.
Additionally, the ministry highlighted that the IMF report for India suggested that, under favorable circumstances, the General Government Debt-to-GDP ratio might decrease to below 70% during the same period.
Despite global shocks such as Covid-19 and the Russia-Ukraine war impacting the world economy uniformly, the ministry asserted that India has performed relatively well and still maintains a debt level below that of 2002. It underscored the significant reduction in general government debt from approximately 88% in FY 2020-21 to about 81% in 2022-23. The ministry also emphasized that the Centre is on track to \”achieve its stated fiscal consolidation target (to reduce fiscal deficit below 4.5% of GDP by FY 2025-26).\”
