India’s debt ratio is projected to be 84% of its gross domestic product by the end of 2022 that is higher than many emerging economies, Paolo Mauro, deputy director of the International Monetary Fund’s Fiscal Department, told PTI on Wednesday.
The debt ratio compares a nation’s public debt to its gross domestic product. By comparing what a government owes with what it produces, the ratio indicates a country’s ability to pay back its debts.
On Wednesday, Mauro said that for India to reduce its debt ratio, it will need to have medium-term financial objectives. He added that there was no clarity on the country’s fiscal anchor yet.
“It would be very important to give reassurance to people and to investors that things are under control, and things are going to become less vulnerable over time,” Mauro told PTI in an interview.
India has needed to borrow 15% of its gross domestic product every year – which is significant – according to Mauro.
“So, in some ways, the debt vulnerabilities are something that one needs to keep an eye on and be mindful of the fiscal deficit,” he said.
The economist, however, said that India’s debt is easier to sustain because of the large investor base.
Another good thing for India is that growth is traditionally very high, he added.
“That helps maintain that ratio at a stable level, maybe even bring it down if growth continues to be very strong,” Mauro said. “But without a reduction in the fiscal deficit, it would be difficult to, on the one hand, keep inflation in check and on the other hand, also reduce the debt ratio.”
Apart from debt, the economist pointed out that India’s fiscal deficit is about 10% of the gross domestic product right now.
The fiscal deficit of a government is the gap between its expenditure and revenues.
“That is quite a bit higher than in most emerging economies,” Mauro said. “About 6.5% of the GDP is from the central government, the rest is from the states.”
Mauro said that it was necessary to reduce the deficit.
The Centre’s fiscal deficit touched 32.6% of the annual target in the current financial year till August as against 31.1% recorded a year ago, The Economic Times reported.
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