InvestorQ : Why has India’s debt / GDP ratio been worsening in the recent quarters?
ishika Banerjee made post

Why has India’s debt / GDP ratio been worsening in the recent quarters?

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2 months ago
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In the latest IMF report put out by Gita Gopinath, the institution has projected the combined government debt of the Centre and states to scale 91% of India’s total GDP by the close of fiscal year 2021-22. However, IMF has also added that this ratio would gradually taper to a more comfortable level of 85% over the next couple of years. As IMF has pointed out, prior to COVID, the Debt/GDP ratio had been consistently under 75% for India.

The sharp spike in fiscal deficit in the last 2 years has been due to aggressive welfare spending by the government to neutralize the pain of COVID-19. This had resulted in a spike in borrowings of the government. The fiscal deficit spiked to 9.3% in FY21 and is likely to scale to nearly 7% in FY22. Even Moody’s, while upgrading India’s outlook recently, had highlighted the high debt levels and low affordability quotient as key macro risk factor.

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