3, December, 2023
HomeIndiaIndia's Finance Minister, Nirmala Sitharaman, Focuses on Reducing Government Debt Burden

India’s Finance Minister, Nirmala Sitharaman, Focuses on Reducing Government Debt Burden

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Finance Minister Nirmala Sitharaman has stated that while India’s debt levels are not exceptionally high on a global scale, the government is actively exploring ways to reduce these liabilities to avoid burdening future generations. This move comes amid concerns from global rating agencies about India’s government debt levels compared to its peers, which have been identified as a constraint to its potential rating upgrade.

India’s general government debt increased from approximately 70% of GDP in FY19 to around 88% in FY21 due to the impact of the COVID-19 pandemic, as the government raised more debt to support relief efforts and sustain economic activities.

However, it has been reduced to approximately 81% in FY23 as both the central and state governments implemented fiscal consolidation plans. The central government’s debt-to-GDP ratio also rose from around 49% in FY19 to 61.5% in FY21 before moderating to 57% in FY23.

Moody’s has projected that India’s general government debt will stabilize at around 80% of GDP over the next few years, which is lower than the peak in FY21 but higher than many similarly-rated sovereigns.

Sitharaman emphasized that the finance ministry is actively studying how emerging market countries manage their debt and is determined to reduce India’s overall debt burden responsibly to prevent future generations from bearing the brunt of it.

The government’s fiscal deficit widened to 9.2% in FY21 due to reduced revenues caused by the pandemic. However, it has been progressively reduced to 6.7% in FY22, 6.4% in FY23, and is expected to further decrease to 5.9% in FY24. The medium-term target is to bring it down to 4.5% by FY26.

Sitharaman also stressed the importance of investing in capital expenditure and infrastructure rather than injecting more money into the hands of the public, highlighting that this approach ensures transparency and economic responsibility, ultimately benefitting future generations.

The IMF’s Fiscal Monitor report from April revealed that public debt as a ratio to GDP increased significantly worldwide during the COVID-19 pandemic, with the global average approaching 100%, and it is expected to remain above pre-pandemic levels in approximately half of the world.

This move by the Indian government reflects a commitment to fiscal responsibility and sustainable debt management to secure the nation’s economic future.

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