Washington, Oct 12: India has a high debt like that of China but the risks associated with it are not as great as that of its northern neighbour, a senior official from the IMF has said, advising India in the medium term to have an ambitious fiscal consolidation plan that brings down deficits.“The current debt in India is also high. It stands at 81.9 per cent of GDP. Compared to China, which is 83 per cent, it is very similar. Also, when we compare India’s debt to the pre-pandemic level in 2019, it was 75 per cent. So it is still quite a bit higher,” Ruud de Mooij, Deputy Director, Fiscal Affairs Department at International Monetary Fund said.
“What we also see in India is a deficit that is 8.8 per cent projected for 2023. A large portion of this is because of expenditures on interest. They pay a lot of interest on their debt: 5.4 per cent of GDP is spent on that, and the primary deficit is 3.4 per cent. So together they add up to 8.8 per cent,” he said.
India’s debt is not projected to rise like in China. It, in fact, is projected to fall slightly by 1.5 per cent to 80.4 per cent in 2028. One of the reasons is that growth in India is much higher. India is one of the countries with high growth. This matters for the debt to GDP ratio. The risks are moderated by some factors, he said.
“One factor is, for instance, the long maturities of the debt. They don’t need to be renewed very frequently. This matters for the gross financing needs. And also, in India we see a large domestic domestically held debts and also denoted in domestic currency.
So these mute the risks associated with the debts,” he said. The risk factor in India is the state level risks, he observed. “Some states really have high debts, have high financing needs and face a high interest burden. This is a factor that does mean that there are significant risks also for India,” he said.
“The policy advice is for the medium term to have an ambitious fiscal consolidation plan that brings down the deficits, especially the primary deficits through a range of measures.
It could be on the revenue side, could be on the spending side, and it could also be on fiscal management, sort of using good fiscal rules, fiscal frameworks to manage the fiscal equation going forward. ” Mooij said.
FM stresses on need for Fund to remain capitalised
Finance Minister Nirmala Sitharaman on Wednesday participated in a roundtable discussion on ‘IMF policy priorities and how the institution should support its membership’ and underlined the need for the institution to remain well-capitalised to meet future challenges.
The roundtable was hosted by US Treasury Secretary Janet Yellen on the sidelines of the World Bank-IMF Annual Meetings in Marrakech, Morocco. Sitharaman spoke about IMF’s mandate and lending policies, a strong, quota-based, and adequately resourced IMF, Poverty Reduction and Growth Trust (PRGT) Financing and IMF governance reforms, the finance ministry said in a statement.