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IMF (International Monetary Fund) Praises India For Using “Right Policies” To Lower Its High Debt Level

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IMF Praises India For Using 'Right Policies' To Lower Its High Debt Level

The International Monetary Fund or IMF has praised India for using the “right policies” to reduce debt

New Delhi:  The International Monetary Fund or IMF has praised India for using “the right policies” to lower its level of debt. Highlighting India’s debt to GDP ratio – the ratio between a country’s government debt (a cumulative amount) and its gross domestic product or GDP (measured in years) – IMF said, India’s share is “quite high”, but New Delhi is trying to lower it using “the right policies.”

Speaking at a news conference on Wednesday, Abdel Senhadji, Deputy Director of IMF’s Fiscal Affairs Department said, “India’s general government debt remained relatively high, at 70 per cent of its GDP in 2017.” But he went on to say that “the authorities are planning to bring it down over the medium term with the right policies.”

India plans to continue with consolidation in the current fiscal year and over the medium term, the top IMF official said speaking about the financial or fiscal year 2017-18.

“They are, in fact, targeting their federal deficit of three per cent over the medium term, and they are also targeting a debt ratio of 40 per cent over the medium term at the federal level, which corresponds to about 60 per cent at the general government level. And we believe that those targets are appropriate,” the IMF official said.

What is the debt to GDP ratio? How does it help?

Countries around the world depend heavily on sovereign debt to finance their economy and government. This borrowing or debt is generally used for funding projects and help the country modernise. It thereby helps the country grow faster than what it otherwise would have. But too much debt can lead to numerous problems. The debt to GDP ratio is an indicator to help investors determine the health of a country’s economy and help assess if it has too much debt.

Is India’s debt to GDP ratio worrisome?

Economic growth is a big factor is understanding whether a country’s debt is a matter of worry or not. For economies that are growing rapidly, a higher debt to GDP ratio is acceptable. This is because its future earnings will be able to pay off the debt much more easily than a country with a slow growth rate. India on date is the world’s fastest growing major economy. This coupled with multiple steps being taken by New Delhi to steadily decrease the debt to GDP ratio is a very good sign for an economy that is growing rapidly and steadily. Another factor that determines the health of an economy and its debt to GDP ration is its demographic. The older the average age of the countries population, greater the cause of concern. For example, an ageing population like China’s is a cause of concern. India on the other hand has the world’s youngest population.

According to a release by the RBI in June last year, at the end of March 2017, India’s external debt witnessed a decline of 2.7 per cent over its level at end-March 2016. The decline in the magnitude of external debt was partly due to valuation loss resulting from the depreciation of the US dollar with respect to the Indian rupee. The external debt to GDP ratio stood at 20.2 per cent as at end-March 2017, lower than its level of 23.5 per cent at end-March 2016.

(With inputs from PTI)
 

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