India's high debt-to-GDP ratio of 81.9% is expected to be moderated by factors such as robust growth rates and domestically held debt, according to Ruud de Mooij of the International Monetary Fund (IMF). Despite the country's economic outlook for 2023 anticipating a deficit of 8.8%, with interest expenditures on its debt making up 5.4% of GDP, relief is on the horizon with a projected debt reduction to 80.4% by 2028.
However, India's economy faces significant challenges due to state-level risks presenting high debts and interest burdens. To address these issues, Mooij has proposed a comprehensive fiscal consolidation plan. The plan includes revenue generation strategies, spending curtailments, and enhanced fiscal management.
The current debt-to-GDP ratio of India is comparable to China's, reflecting the high level of borrowing in the world's two most populous nations. This ratio is seen as a key indicator of a country's financial health and ability to pay back its debts.
The IMF official highlighted the mitigating factors that could ease India's debt burden. High growth rates could generate increased revenue, while the fact that much of the debt is domestically held could reduce exposure to external shocks.
Despite these mitigating factors, it is clear that significant challenges remain for India's economy due to state-level risks presenting high debts and interest burdens. These risks necessitate a comprehensive approach to fiscal consolidation.
In response to these challenges, Mooij has suggested a comprehensive fiscal consolidation plan. This plan would involve strategies for generating more revenue, curtailing spending, and enhancing fiscal management at both the national and state levels.
This approach could help India reduce its debt burden over time, with the IMF projecting a reduction in the country's debt-to-GDP ratio from 81.9% in 2023 to 80.4% by 2028. This projected reduction is expected to bring some relief to the Indian economy, although the challenges posed by high state-level debts and interest burdens remain significant.
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