Finance Ministry: “IMF’s Projection of Government Debt Exceeding 100% of GDP by FY28 is Misconstrued”

India stated on Friday that the IMF’s estimate that the nation’s total government debt will surpass 100% of its GDP by 2027–2028 is “misconstrued.” The finance ministry said in a statement that a number of other nations are anticipated to do worse than India in terms of debt.

For example, the equivalent “worst-case” statistics for the USA, UK, and China are about 160, 140, and 200 percent, respectively. This is far worse than India’s 100 percent, according to the statement.

Notably, the same analysis suggests that, under favorable conditions, the whole government debt to GDP ratio may drop to less than 70% throughout that time. In its response to the IMF study, the ministry said that any interpretation that the research suggests that the general government debt will surpass 100% of GDP in the medium term is misinterpreted. This came after the yearly Article IV consultation with Indian authorities.

The ministry also stated that the center is on track to meet its declared fiscal consolidation target of bringing the fiscal deficit below 4.5% of GDP by FY 2025–2026. The general government debt, which includes both state and federal debt, has sharply decreased from approximately 88% in FY 2020–21 to approximately 81% in FY 2022–2023.

Additionally, each state has passed its own law pertaining to fiscal responsibility, which is overseen by its own state legislature. Thus, it said, “it is anticipated that the overall government debt will decrease significantly over the medium to long term.”

The IMF’s Article IV consultation report from earlier this week states that while the budget deficit has decreased, the public debt is still high and that the fiscal buffers need to be restored. The present and medium-term economic policies and prospects of a nation are examined by the IMF.

According to the research, India’s high level of public debt necessitates more steps to be taken in terms of income and spending, such as further changes to the GST and subsidies, while also keeping public investment and targeted help for the most disadvantaged at the top of the priority list. In a statement, the finance ministry defended India’s stance, pointing out that foreign borrowings from bilateral and multilateral sources contribute very little to the country’s overall government debt, which is mostly denominated in rupees.

The IMF Report has made note of this. The majority of domestically issued debt is medium- or long-term, with a weighted average duration of around 12 years for central government debt. This debt is mostly in the form of government bonds. As a result, domestic debt has a minimal rollover risk and a generally modest exposure to exchange rate volatility, according to the statement. According to the statement, India has faced many global shocks this century, including the Russian-Ukrainian War, the taper tantrum, the global financial crisis, and Covid. These shocks have all had an impact on the world economy, with very few nations being unscathed.

As a result, the ministry said that in a world where economies are linked and globalized, every unfavorable shock or catastrophic incident is anticipated to have a one-way effect on every economy. It also said that a cross-national comparison reveals that India has fared very well and is still below the 2002 debt level.