In the light of the International Monetary Fund’s latest Article IV consultations with India, certain presumptions have been made taking into account possible scenarios that does not reflect factual position, which is as follows:

• General Government Debt includes debt of both the Centre and the State Governments.
• It is important to note that General Government Debt in India is overwhelmingly rupee-denominated, with external borrowings (from bilateral and multilateral sources) contributing a minimal amount. 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.
• Among the various favourable and unfavourable scenarios given by the IMF, under one extreme possibility, like once-in-a-century COVID-19, it has been stated that the General Government’s debt could be “100 per cent of debt to GDP ratio” under adverse shocks by FY2028. It talks only of a worst-case scenario and is not fait accompli.
• Similar IMF Reports for other countries show much higher extreme scenarios for them. The corresponding figures of ‘worst-case’ scenarios for the USA, UK and China are about 160, 140, and 200 per cent, respectively, which is far worse compared to 100 per cent for India.
• 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 per cent in the same period. Therefore, any interpretation that the report implies that General Government debt would exceed 100% of GDP in the medium term is misconstrued.
• The shocks experienced this century by India were global in nature, e.g., the global financial crisis, Taper Tantrum, COVID-19, Russia-Ukraine War, etc. These shocks uniformly affected the global economy and barely few countries remained unaffected. Therefore, any adverse global shock or extreme event is expected to unidirectionally impact all the economies in an interconnected and globalized world.
• A cross-country comparison shows that India has done relatively well and is still below the debt level of 2002. (Table below)
• The General Government debt (including both State and Centre) has steeply declined from about 88 per cent in FY 2020-21 to about 81 per cent in 2022-23, and the Centre is on track to achieve its stated fiscal consolidation target (to reduce fiscal deficit below 4.5 per cent of GDP by FY 2025-26). 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.

Debt to GDP Ratio (Per cent)

Country	2002	2010	2018	2022
Japan	154.1	205.9	232.4	260.1
Singapore	96.3	98.7	109.4	167.5
USA	55.5	95.1	107.4	121.3
Sri Lanka	96.3	68.7	83.6	115.5
France	60.3	85.3	97.8	111.8
UK	34.1	74.0	85.2	101.9
Brazil	76.1	62.4	84.8	85.3
India	82.9	66.4	70.4	81.0
China	25.9	33.9	56.7	77.0
South Africa	31.8	31.2	51.5	71.1
Germany	59.9	82.0	61.9	66.1

Index of Debt to GDP Ratio

Country	2002	2010	2018	2022
Japan	100.0	133.6	150.8	168.8
Singapore	100.0	102.5	113.6	173.9
United States	100.0	171.3	193.4	218.4
Sri Lanka	100.0	71.4	86.8	120.0
France	100.0	141.5	162.3	185.5
UK	100.0	216.9	249.7	298.7
Brazil	100.0	82.0	111.4	112.1
India	100.0	80.1	85.0	97.8
China	100.0	130.9	218.6	297.0
South Africa	100.0	98.1	162.1	223.6
Germany	100.0	136.8	103.3	110.3
Philippines	100.0	73.0	57.0	88.2
Mexico	100.0	100.7	130.9	135.6
Korea	100.0	173.1	234.9	315.7
Bangladesh	100.0	80.0	79.8	102.2

 

General government debt profile largely rupee denominated with low rollover risk; IMF worst case scenario remains conditional. General Government Debt is primarily composed of central and state borrowings and is overwhelmingly rupee denominated, with domestically issued medium to long term bonds implying low rollover risk and limited exchange rate exposure. The IMF Article IV presents an extreme hypothetical shock that could raise the debt to GDP ratio, but that is a worst case scenario; under favourable assumptions the ratio may decline, while domestic fiscal consolidation targets and state Fiscal Responsibility Legislation support a medium term downward debt trajectory.