High debt-GDP ratio to limit govt spend in 2020s: Report

India’s general government debt-to-GDP ratio is likely to be at 80 per cent of GDP by FY30 and is unlikely to fall to the 60 per cent target even by FY40.

As per the estimates of Motilal Oswal Research, general government debt—Centre plus states— rose to 75 per cent of GDP in FY20 from 70 per cent in FY18. It is likely to reach 91 per cent of GDP in FY21. This would be the highest level since 1980. It may stay at less than 90 per cent of GDP up to

FY23.

This surge in India’s government debt-to-GDP ratio would restrict its ability to grow its spending significantly and support economic activity in the 2020s decade as it has done in the past few years.

India’s general government debt-to-GDP ratio is likely to be at 80 per cent of GDP by FY30 and is unlikely to fall to the 60 per cent target even by

FY40 without hurting GDP growth more seriously, the report said.

Gradual fiscal consolidation to lower the government debt-to-GDP ratio to

80 per cent of GDP by

FY30 implies that primary spending by the general government is likely to grow at an average of 7.1 per cent in the 2020s decade. The average growth was 11.3 per cent in the 2010s decade. The faster the fiscal consolidation, the lower will be the government debt. But it will slow the growth in fiscal spending. This would have the potential to hurt real GDP growth further, creating a vicious circle, which would eventually make it more difficult to bring down the debt-toGDP ratio as planned.

Although the government debt-to-GDP ratio is expected to remain high, there is no fear of debt unsustainability or debt spiraling out of control.

The report also finds that the government support to real GDP growth in the

2020s decade would be lower than in the past few years.