InvestorQ : Is it true that Indian government is going to further exceed its borrowing limits and what could be the implications?
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Is it true that Indian government is going to further exceed its borrowing limits and what could be the implications?

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2 weeks ago
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It is true that the already high borrowing levels are likely to go higher from here. That is not great news. Here is what is going to happen and its likely implications.

a) For starters, the centre plans to borrow another Rs.158,000 crore to compensate the states for GST losses as committed for a period of five years. This is largely on account of the COVID 2.0 stress.

b) It is easy to say that India did not have much of a choice. GST flows are weak and COVID resurgence is a major challenge. The only concern here is that the borrowing of Rs.158,000 crore may go towards last year dues and so there will be more borrowing.

c) The centre has set borrowing target of Rs.12 trillion for the current fiscal, which is fiscal deficit of around 6.8% of GDP. If you add up additional borrowings for the previous and this fiscal GST shortfalls, fiscal deficit could end at 8.5% of GDP.

d) Then there could be impact of revenue shortfalls and that could also add to revenue shortfalls. The result is that the Debt / GDP may go up further and it has already moved up from 73% to 91% post COVID.

e) India accounts for about 2.7% of total government debt, but the problem is that countries with large debt are rich nations. Japan has 237% debt/GDP while countries across Europe, US and Canada have debt/GDP of above 100%. But they are all rich.

f) There is no point comparing India’s debt / GDP with that of Canada or Japan where the average per capita income nearly 30-40 times India’s income levels. India could be exposing itself to a sudden downgrade by rating agencies.

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