New Delhi:
Following reports of the International Monetary Fund warning India over alleged vulnerabilities in government debt, the Center on Friday said that some assumptions have been made, which do not reflect the actual situation.
Among the key points raised by the Finance Ministry is that the majority of India’s general government debt, which includes that of the Center and states, is in rupees, and external borrowing constitutes only a small portion. He pointed out that the risks of extension are low for local debt.
In its Article IV consultations with India, the IMF said that under adverse shocks, the country’s general government debt could reach 100% of its debt-to-GDP ratio by FY2028. The ministry explained that this had been mentioned as an extreme possibility as ” “Covid-19 once in a century” was among many positive and negative scenarios that were included. The ministry stressed that in that case, the IMF was only talking about the worst-case scenario, and this was not a “fait accompli.”
The Ministry of Finance also noted that IMF reports for other countries showed a much higher scenario for them, with figures of 160% for the United States, 140% for the United Kingdom, and 200% for China.
The IMF report on India also indicates that under favorable conditions, the ratio of general government debt to GDP may fall below 70 per cent in the same period, the ministry said.
The ministry said shocks such as Covid-19 and the Russia-Ukraine war uniformly affected the global economy. Despite this, the report said, India’s performance has been relatively good and is still below the debt level in 2002.
He also stressed that general government debt has declined significantly from about 88% in FY 2020-2021 to about 81% in 2022-2023 and that the Center is on track to “achieve the declared fiscal consolidation target (of reducing the fiscal deficit to less than 4.5%).” ) percent of GDP by fiscal year 2025-2026).