Like China, India has a high debt but the risks associated with the debt are not as severe as that of the former nation, a senior official at the International Monetary Fund said. The official also suggested that India should have an ambitious fiscal consolidation plan to reduce deficits in the medium term.
During an interview with PTI, Ruud de Mooji, Deputy Director, the Fiscal Affairs Department at IMF, said, “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.”
Mooji further noted, “What we also see in India is a deficit that is 8.8 per cent projected for 2023. In India, 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.”
The official stated that India’s debt is not expected to increase 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 really high growth. This matters of course for the debt to GDP ratio. Also, just to note that 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 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 added.
Mooji stated that certain states have high debts, high financing needs, and face a high-interest burden. He suggested that India should undertake certain measures to reduce it’s deficits. These measures could focus on the revenue side, or the spending side, along with a focus on fiscal management, ‘sort of using good fiscal rules, fiscal frameworks to manage the fiscal equation going forward’. He noted that the debt level is expected to remain stable at 80 per cent. “What we would recommend is at least a decreasing path of debt, because what we see is that interest expenditures are 5.4 per cent of GDP,” he added.
Mooji also urged for India to strengthen it’s tech system. He noted that the segment involved multiple opportunities such as in the general sales tax, which has multiple rates, and many exemptions, and not all of these are equally effective. “Improving the design of the general sales tax could contribute to this. We also see opportunities for broadening the base of the personal income tax and the corporate income tax where there are many loopholes that can often be addressed,” he added.