NEW DELHI: Amid rising debt of emerging nations, RBI Governor Raghuram Rajan, warned the government against the borrowing binge in order to spur growth. Any deviation from the fiscal consolidation path will hurt economic stability, he added.
“As Brazil’s experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies. We should be very careful about jeopardising our single most important strength during this period of global turmoil -macroeconomic stability,” Rajan said addressing the CD Deshmukh Memorial lecture here Friday.
Brazil’s gross debt stood at 66.2 per cent of the GDP in 2015, up from 57.2 per cent a year ago. More alarming is China, whose debt stands at 250% in 2015. India’s debt to GDP ratio is at 23.8% or $475.8 billion as on March, 2015.
According Rajan, there should be a public discussion whether India should yet again postpone fiscal consolidation path with some arguing it could lead to higher growth. “Unfortunately, the growth multipliers on government spending at this juncture are likely to be much smaller, so more spending will probably hurt debt dynamics, ” he said.
Reeling out data, he said consolidated fiscal deficit rose to 7.2% from 7% . “So we expanded the aggregate deficit in the last calendar year. With UDAY, the scheme to revive state power distribution companies, coming into operation in the next fiscal, it is unlikely that states will be shrinking their deficits, which puts pressure on the Centre to adjust more.”