IMF’s India debt projection: Forecast is ‘misconstrued’ says Finance Ministry

India has rebuffed the International Monetary Fund’s (IMF) projection that the nation’s government debt could surpass 100 percent of its GDP by 2027-28, calling it “misconstrued”, PTI reported. The finance ministry in a statement clarified that the debt situation in India isn’t as alarming as projected and highlighted several points to substantiate its stance.

“It is also noteworthy that the same report indicates that under favourable circumstances, the general government debt to GDP ratio may decline to below 70 percent in the same period. Therefore, any interpretation that the report implies that general government debt would exceed 100 percent of GDP in the medium term is misconstrued,” the ministry said in its rebuttal to the IMF report following the annual Article IV consultation with Indian authorities.

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Comparative Debt Analysis

Contrary to the IMF’s forecast, India stressed that other major economies face more daunting debt scenarios. The ministry pointed out that the USA, UK, and China are estimated to face significantly higher debt-to-GDP ratios of approximately 160, 140, and 200 percent, respectively, in their ‘worst-case’ scenarios. In contrast, India’s projected ratio of 100 percent appears more moderate.

The ministry also contested any notion that government debt would breach the 100 percent GDP mark in the medium term. Citing the same IMF report, it highlighted the possibility of the debt-to-GDP ratio declining to below 70 percent under favourable conditions by the specified period.

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Highlighting positive fiscal trends, the ministry emphasised a decline in general government debt from around 88 percent in FY21 to approximately 81 percent in 2022-23. It affirmed its commitment to achieving fiscal consolidation targets, aiming to reduce fiscal deficit below 4.5 percent of GDP by FY26.

“The states have also individually enacted their fiscal responsibility legislation, which is monitored by their respective state legislatures. Therefore, it is expected that the general government debt will decline substantially in the medium to long term,” it said.

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Domestic Stability Key, says India

While acknowledging a reduced budget deficit, the IMF flagged elevated public debt, urging India to bolster fiscal buffers. The ministry countered, advocating additional revenue and expenditure measures such as GST and subsidy reforms, prioritising public investment, and targeted support for vulnerable sections.

Addressing concerns over debt composition, the finance ministry highlighted that India’s debt is largely rupee-denominated, with minimal contributions from external borrowings. Emphasising the stability of domestically issued debt, mostly in government bonds with longer-term maturities, it underscored low rollover risks and limited exposure to currency volatility.

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“This has been highlighted in the IMF Report. Domestically issued debt, largely in the form of government bonds, is mostly medium or long-term with a weighted average maturity of roughly 12 years for central government debt. Therefore, the rollover risk is low for domestic debt, and the exposure to volatility in exchange rates tends to be on the lower end,” it said.

Regarding global economic shocks, the ministry highlighted India’s resilience in facing events such as the global financial crisis, COVID-19, and geopolitical tensions like the Russia-Ukraine War, underscoring that these crises uniformly impacted the global economy. It stated that India’s current debt level remains below 2002 in a cross-country comparison, illustrating the nation’s relative stability.

(With inputs from PTI)