NEW DELHI: Amid the Opposition attack on the government’s growing debt levels, a report from Moody’s Investors Service has come as a big booster for the government on the issue. Moody’s has said as long as nominal GDP growth holds, India’s debt burden will be stable or decline slightly.
The report says fast-growing GDP at 11% in nominal terms is a key driver of its projections of a downward trend in its debt burden. “Given the favourable gap it (GDP growth) creates against the average interest rate on debt, it enables the persistence of fiscal deficits with a contained debt burden. As in the past, the key determinant of fiscal strength and the credit profile will be debt affordability and in particular the proportion of revenue absorbed by interest payments,” says the report.
Moody’s feel that interest payments as a percentage of revenue at 26% currently is a large proportion, which, if not further addressed via a continued broadening of the revenue base, will remain an important constraint on the government’s ability to provide more support for growth and address developmental needs. According to Moody’s, India’s total debt (Centre and states) as a percentage of GDP will fall from 90% in 2020 to below 80% by 2025.