India debt may exceed 100% of GDP, warns IMF

The International Monetary Fund (IMF) has raised concerns over India's burgeoning debt, cautioning that it might surpass 100% of the country's Gross Domestic Product (GDP)in the medium term, stated report.The United Nations' financial agency further stated that long-term sustainability risks are high because the country needs considerable investment to improve resilience to climate stresses and natural disasters.“This suggests that new and preferably concessional sources of financing are needed, as well as greater private sector investment and carbon pricing or equivalent mechanism,” the IMF said in its annual Article IV consultation report, according to information.
“A sharp global growth slowdown in the near term would affect India through trade and financial channels,” it said. “Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures for India.”The agency added: “Domestically, weather shocks could reignite inflationary pressures and prompt further food export restrictions. On the upside, stronger than expected consumer demand and private investment would raise growth.”
The Indian government, however, disagreed, saying that sovereign debt risks are limited as it is mainly denominated in domestic currency, according to media report.An official reportedly stated,“The IMF doesn’t understand India’s domestic compulsions.“Since imported inflation is a crucial element of India’s overall inflation that impacts 1.4 billion people, the central bank has to actively manage the rupee volatility.”K.V. Subramanian, India’s executive director at the IMF, said the IMF’s assertion that the baseline carries the risk that debt would exceed 100% of GDP in the medium term in the event of shocks which India has experienced historically sounds extreme.“The same can be said of the staff prognosis that debt sustainability risks are high in the long term. The risks from sovereign debt are very limited as it is predominantly denominated in domestic currency. Despite the multitude of shocks, the global economy has faced in the past two decades, India’s public debt-to-GDP ratio at the general government level has barely increased from 81% in 2005-06 to 84% in 2021-22, and back to 81% in 2022-23,” he said in a statement, which is part of the report.
India, however, told the agency that it is estimating a growth rate of 7% to 8%, according to sources.

(Ira Singh, Asstt Editor)