Interest payments: India’s soaring debt may curb productive spending

Foster expected debt to stabilise at around 92% of GDP by FY25, against 88.9% (Moody’s estimate) in FY21. This is among the least optimistic projections of India’s debt profile; some other agencies have forecast the burden to ease with a pick-up in economic growth.

India’s elevated general government debt of about 90% of gross domestic product (GDP) in the wake of the Covid-19 outbreak can potentially inflate interest payments and impair the ability of the Centre as well as states to boost productive spending, economists and senior executives at global rating agencies told FE.

Given the damage caused by the second wave, some economists expect the FY22 fiscal deficit to exceed the 6.8% target by as much as one percentage point.

The need of the hour, therefore, is to rekindle growth impulses fast, which will bolster revenue mop-up and enable the country to pare down its debt, they stressed. This must also be followed up with a credible road map, which should be more sacrosanct than the oft-relaxed FRBM rules, to reduce debt.

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