The Centre’s debt-to-GDP ratio is expected to increase

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The government has for the first time revealed that it expects India’s debt-to-GDP ratio to increase in FY22 to a high of 61.7% in 16 years, from 60, 5% a year ago.

According to the Reserve Bank of India Handbook of Statistics on the Indian Economy, the Centre’s debt was higher than the FY22 projection during FY06 at 63.9% of gross domestic product.

The increase in the level of indebtedness is a major concern of rating agencies. S&P Global Ratings last month, while keeping India’s sovereign rating at the lowest investment level with a stable outlook, warned it could lower ratings if the recovery is significantly slower than it does. had hoped from FY22 or if the net general government deficits and the associated accumulation of indebtedness exceed its forecasts.

Public debt includes the total stock of liabilities owing to domestic debt contracted through treasury bills, bonds and securities; external debt mainly contracted with multilateral institutions; and public account commitments such as contingency fund commitments and the National Small Savings Fund.

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The fiscal year 22 budget failed to talk about the debt-to-GDP ratio, even in the “Medium-term fiscal policy and fiscal policy strategy statement”, although the finance ministry, through an amendment to the Fiscal Responsibility and Fiscal Management Act (FRBM) in FY19 included it as a key fiscal target, promising to bring it down to 60% by FY25. The Minister of Finance, Nirmala Sitharaman, in her speech on the budget, however, gave a new way of budgetary consolidation, to bring the budget deficit to less than 4.5% of GDP by FY26, against 6, 8% budgeted for FY22.

“We hope to achieve consolidation by first increasing the dynamism of tax revenues through better compliance, and second by increasing revenues from monetization of assets, including public sector companies and land,” he said. she declared.

The 15th Finance Committee (FFC), chaired by NK Singh, recommended reducing the public debt-to-GDP ratio from 89.8% of GDP in FY21 to 85.7% of GDP in FY21. exercise 26. The commission recommended the establishment of a high-level intergovernmental group to develop a new FRBM framework and oversee its implementation.

“The government’s amendment to the FRBM law will target a fiscal consolidation path aimed at achieving a budget deficit level below 4.5% of GDP by 2025-2026. The modification of the FRBM’s debt targets will be in line with the broad budget deficit trajectory indicated above, ”Minister of State for Finance Pankaj Chaudhary told Rajya Sabha on Tuesday.

Last month, S&P Global Ratings forecast aggregate net public debt, including that of states, to stabilize at just over 90% of GDP in FY 22 relative to India’s stock of net debt. before the pandemic 74% of GDP. The rating agency includes recapitalization bonds that were issued to inject capital into public sector banks on the government balance sheet as well as liabilities of Indian Railways Finance Corp.

“As we have said, growth is the most important for debt sustainability, and given the expected growth for India this year and into the future, we maintain that debt sustainability will only be not a problem, “K. Subramanian said last month mint in an interview.

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