NEW DELHI: After the International Monetary Fund (IMF) raised concerns over the long-term sustainability of India’s debts cautioning that general government debt will exceed 100% of India’s gross domestic product (GDP) in the near future, finance ministry said the government debt is under control and that it is on track to achieve 4.5% fiscal deficit by FY25.
“General government debt (including state and Centre) has declined from about 88% in FY21 to about 81% in FY23, and the Centre is on track to achieve its stated fiscal consolidation target (to reduce fiscal deficit below 4.5% of GDP by FY26),” the ministry said. It further said the report talks only of a worst-case scenario.
“The same report indicates that under favourable circumstances, general government debt to GDP ratio may decline to below 70% in the same period. Therefore, any interpretation the report implies that general government debt would exceed 100% of GDP in medium term is misconstrued,” it added in its note.
The ministry, however, reiterated that its views on IMF are ‘clarification of factual position’ and not a ‘rebuttal’ to IMF. “..it is an effort to arrest is interpretation/misuse of the comments in the IMF document,” said the ministry.
Drawing a parallel with other countries, the ministry said the IMF has shown much higher extreme scenarios for them in its reports. The corresponding figures of ‘worst-case’ scenarios for the USA, the UK and China are about 160, 140, and 200%, respectively, which is far worse compared to 100% for India.
“The shocks experienced this century by India were global in nature, e.g., the global financial crisis, Taper Tantrum, COVID-19, Russia-Ukraine War, etc. These shocks uniformly affected the global economy and barely few countries remained unaffected. Therefore, any adverse global shock or extreme event is expected to unidirectionally impact all the economies in an interconnected and globalised world,” the ministry stated.
The report released after consultation with India has said country’s fiscal adjustment path needs to be more ambitious to rebuild fiscal buffers quickly. It says though favorable debt dynamics suggest debt stabilization, the current primary deficit reduction trajectory indicates that it would take decades to reach a stable debt level.
Counterpoint
Drawing a parallel with other countries, the ministry said IMF has shown much higher extreme scenarios for them. Figures of ‘worst-case’ scenarios for the USA, the UK and China are 160, 140, and 200%, respectively