IMF Warns India’s Rising Debt Govt Disagrees

The Indian government’s debt-to-GDP ratio projection by the International Monetary Fund (IMF) exceeding 100% by 2027-28 is “misconstrued”, the Union finance ministry said while adding that the predictions by the...

Ruby Thakur
December 23, 2023
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The Indian government’s debt-to-GDP ratio projection by the International Monetary Fund (IMF) exceeding 100% by 2027-28 is “misconstrued”, the Union finance ministry said while adding that the predictions by the UN’s financial body correspond to a worst-case scenario which is not a “fait accompli”, or not something that cannot be revived.

IMF Warns India’s Rising Debt Govt Disagrees

Why In News

The Indian government’s debt-to-GDP ratio projection by the International Monetary Fund (IMF) exceeding 100% by 2027-28 is “misconstrued”, the Union finance ministry said while adding that the predictions by the UN’s financial body correspond to a worst-case scenario which is not a “fait accompli”, or not something that cannot be revived.

What It’s All About

Following reports of the International Monetary Fund cautioning India on alleged government debt vulnerabilities, the Centre on Friday said that certain presumptions have been made, which do not reflect the factual position.

One of the key points that the finance ministry has raised is that a majority of India’s general government debt, which includes those of the Centre and states, is in rupees, and external borrowings make up only a small portion. It pointed out that the rollover risk is low for domestic debt.

In its Article IV consultations with India, the IMF had said that, under adverse shocks, the country’s general government debt could be 100% of debt to GDP ratio by FY 2028. The ministry has clarified that this was mentioned as an extreme possibility like “once-in-a-century Covid-19” and was among various favourable and unfavourable scenarios that were listed.
The ministry has emphasised that in that instance, the IMF was talking only of a worst-case scenario and this is not a “fait accompli”.

The IMF report for India also indicates that, under favourable circumstances, the General Government Debt to GDP ratio may decline to below 70 per cent in the same period, the ministry said.
The ministry said that shocks like Covid-19 and the Russia-Ukraine war have uniformly impacted the global economy. Despite this, it said, India has done relatively well and is still below the debt level of 2002.

“Therefore, any interpretation that the report implies that General Government debt would exceed 100% of GDP in the medium term is misconstrued,” the ministry added. It also emphasised that the general government debt has reduced significantly from approximately 88% in FY 2020-21 to about 81% in 2022-23 and that the Centre is on track to “achieve its stated fiscal consolidation target (to reduce fiscal deficit below 4.5 per cent of GDP by FY 2025-26)”.

Debt To GDP Ratio

The The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP).
By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts.
Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment.

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Ruby Thakur

General Studies Lecturer SSBCrackExams, BSc In PCM, Trained Students For State Services Exams. Expertise in Geography ,Polity & Current Affairs. Love Travelling.