Finance Ministry’s response IMF’s statement on debt
STORIES, ANALYSES, EXPERT VIEWS
According to IMF, adverse shocks could lift India’s general government debt to, or beyond 100% of GDP in the medium-term (by 2027-28). The Ministry asserted this was only a worst-case scenario and not a fait accompli, and emphasised that other IMF country reports show much higher extreme ‘worst-case’ scenarios, for instance, at 160%, 140% and 200% of GDP, for the U.S., the U.K. and China, respectively.
The combined debt of central and State governments stood at 81% of GDP in 2022-23, from 88% in 2020-21. Under favourable circumstances, the IMF reckons this could even go down to 70% by 2027-28. The shocks faced by India so far in this century were global, and affected the entire world economy, be it the 2008 financial crisis or the pandemic, the Ministry pointed out.
IMF’s perceptions have improved: In the broader picture, IMF staff’s perceptions of India’s fiscal position have actually improved over the past year. From arguing in 2022 that India’s fiscal space is at risk, they now believe sovereign stress risks are moderate. The Hindu writes “this is in no small part due to the ability of the Centre, whose debt levels were about 57% of GDP last year, to meet fiscal deficit targets in recent times. Reducing debt and spends to stay the course on its commitment to bring the deficit to 4.5% of GDP by 2025-26 from an estimated 5.9% this year, is critical. While reacting to an adverse detail in a report sometimes ends up drawing more attention to it, actions tend to always speak louder than words.”
