Interpretation that the ratio of public debt to GDP could exceed 100% “wrong”: Ministry of Finance


The Treasury said recent interpretations that the government debt-to-GDP ratio could exceed 100% in the near future were “incorrect”.

In light of the IMF’s latest Article IV consultations with India, certain assumptions have been made that take into account possible scenarios that do not reflect the factual position, a press release said on Friday.

It is important to note that public debt – which includes both central and state government debt – is largely rupee-denominated in India, with external borrowing from bilateral and multilateral sources contributing a minimal amount. was highlighted in the IMF report.

Domestic debt issued, mostly in the form of government bonds, is mostly medium- or long-term, with a weighted average maturity of central government debt of roughly 12 years. Therefore, domestic debt renewal risk is low and exposure to exchange rate volatility tends to be on the low end, she explained.

Main advantages

  • Among the various favorable and unfavorable scenarios provided by the IMF, under one extreme option, such as a once-in-a-century COVID-19, it was stated that public debt could be “100% of the debt-to-GDP ratio” under adverse shocks by FY28. He is only talking about the worst case scenario and it is not Finished thing.

  • Similar IMF reports for other countries show much higher extreme scenarios for them. The corresponding “worst case” scenario numbers for the US, UK and China are around 160, 140 and 200%, respectively, which is much worse compared to 100% for India.

  • It is also notable that the same report states that under favorable circumstances, the public debt-to-GDP ratio may fall below 70% over the same period. Any interpretation that the report implies that government debt would exceed 100% of GDP in the medium term is therefore misconstrued.

  • The upheavals that India has experienced in this century have been global in nature, eg Global Financial Crisis, Taper Tantrum, Covid-19, Russo-Ukraine War, etc. These upheavals have uniformly affected the global economy and hardly a few countries have been left untouched. Therefore, any adverse global shock or extreme event is expected to have a unidirectional impact on all economies in an interconnected and globalized world.

A cross-country comparison shows that India has fared relatively well and is still below 2002 debt levels, the report said.

Total government debt (including state and central government) has come down sharply from around 88% in FY21 to around 81% in FY23 and the central government is on track to achieve its stated fiscal consolidation target of reducing the fiscal deficit below 4.5% of GDP by FY26, he said.

States have also individually enacted their own fiscal responsibility legislation, which is monitored by their respective state legislatures. Government debt is therefore expected to decline significantly in the medium to long term, the report said.


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