International Monetary Fund (IMF) concerned for India’s high debt situations, has recently warned that general government debt of India may extend up to 100% of Gross Domestic Product (GDP) in the medium term. IMF also apprehended for long term debt sustainability risks owing to requirement of substantial investment for meeting India’s climate change ambitions. Needed green investment may aggravate the associated risks if concession does not take place intelligently. IMF briefed in its annual Article IV consultation report.
On the other hand, the Indian government refuted IMF statement by asserting its stand on risk. As per government, risks from sovereign debt are not as high as IMF claimed, it is minimal and can be managed since it is denominated primarily in domestic currency.
Reportedly India’s executive director opined that despite multiple shocks in the world economy in post covid era, India’s public debt-to-GDP ratio at the general government level has barely scaled up from 81pc in 2005-06 to 84pc in 2021-22 and down to 81pc in 2022-23.
Furthermore, IMF pointed out the rupee-exchange rate transitioned within a low range during December 2022-October 2023, cautioned for Foreign Exchange Intervention (FXI) by the central bank would expand and leading volatile market conditions. IMF suggests for flexible exchange rate to suck the excessive and external shocks instead of fixed arrangement. However, there are ample disagreements and divergence of views from various sides with respect to IMF analysis and reclassification. Government alongside RBI denounced IMF data for selective propaganda and negated its false staff assessment.
Potential sluggish growth of global economy likely impacts India’s trade and affairs. Resultantly world trade disruptions could rise inflationary variables including price rise of essential commodities. Internally, domestic market burden may push fiscal regularities to opt hard policy for balancing out an unviable economic temperament.
Methods for lowering public debt:
Several debt controlling measures has been undertaken through monetary and financial policy lately. Government is constantly investigating its ways to deal with the debt syndrome as being role model of developing economy.
Government claims that the debt of state government positioned at around 28pc of GDP while the central government debt to GDP stood nearly at 51pc by the end of March 2023.
Due to exponential debt risks, India’s credit rating suffers too thereby leading an unsustainable circumstance to reduce the associated costs for arresting the said debt. Hence, major global rating agencies Fitch, S&P and Moody’s have kept India’s grading low by observing the uncertainties.
As per economists, Indian government fiscal performance is not sufficient to enhance the debt situation to compete with the international market. During post covid period India’s economy turned into ‘K shaped’ growth which affects the GDP as well as debt shock agenda.
Apart from this, low per capita income is doubling the slowdown and posing a negative factor in improving its grading in international investment market.
However, government officials anticipate forthcoming inclusion in government bond indices will enlarge the investor base and minimise or diversify the risk.India’s financial interventions and expenditures are imperative to reckon because of prompt and qualitative actions driven by target-oriented approach which has undoubtedly multiplier effect in all dimensions. Besides, to manage economical functions of a magnanimous population India needs a slow and steady race for sustaining its growth trajectory.
