The International Monetary Fund (IMF) has projected the government debt, including that of the Centre and the states, to rise to a record 90.6 per cent of gross domestic product (GDP) during 2021-22 against 89.6 per cent in the previous year. It will then moderate to 88.8 per cent during FY23, but will remain over 85 per cent during the next five years — till 2026-27, the IMF said in its latest Fiscal Monitor.
Before Covid-19 hit the country, the government debt remained less than 80 per cent in the recent past. For instance, it was 74.1 per cent during FY20, 70.4 per cent in the previous year, 69.7 per cent in FY18 and 68.9 per cent in the year before that.
While upgrading the outlook on India’s sovereign rating to stable from negative, Moody’s Investors Service recently counted high general government debt, low debt affordability among other parameters as principal credit challenges for the economy.
The Centre’s debt was at 58.8 per cent of GDP in FY21. It fell slightly to 57.6 per cent in the first quarter of FY22.
One positive development is the Centre including GST compensation to states in its calendar for overall borrowing, which was kept unchanged at Rs 5.03 trillion in the second half of FY22 even after incorporating borrowings for GST compensation to the states.
After its February Budget announcement of Rs 12.05 trillion of gross market borrowing, the government in May said it may have to borrow an additional Rs 1.58 trillion from the market to meet the GST compensation shortfall.
However, market borrowings constitute a small fraction of the Centre’s total debt. For instance, it accounted for 6.1 per cent of total debt during Q1FY22.
IMF also projected India’s fiscal deficit, of both the Centre and the states, to remain in double digits in FY22 even as it would moderate to 11.3 per cent of GDP, from 12.8 per cent in the previous year.
According to the Fiscal Monitor, the deficit will remain above the pre-Covid levels in the next five years. It is likely to be at 7.8 per cent in 2026-27. The gap between the expenditure and revenues of the governments was at 7.4 per cent during FY20.
It should be noted that the IMF’s methodology to calculate fiscal deficit is slightly different than India’s. For instance, it does not include disinvestment proceeds and licence-auction revenues in the government receipts.
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