India’s Debt Situation: Breaking Down the Finance Ministry’s Response to the IMF Report

The finance ministry of India has recently issued a statement in response to the International Monetary Fund’s (IMF) report on the country’s debt situation. The ministry has refuted the IMF’s assertion that India’s government debt would exceed 100% of gross domestic product (GDP) in the medium term, deeming it factually incorrect.

The ministry has expressed that the IMF’s report made presumptions that did not accurately reflect the factual position. It emphasised that the general government debt in India, which encompasses both the centre and state governments, is predominantly rupee-denominated, with minimal contributions from external borrowings. The ministry highlighted that domestically issued debt, mainly in the form of government bonds, has a low rollover risk and limited exposure to exchange rate volatility.

Furthermore, the ministry has pointed out that the IMF report presented various scenarios, including an extreme possibility where India’s general government debt could reach 100% of the GDP by FY28 under adverse shocks. However, it clarified that this was only a worst-case scenario and not a certainty. In fact, the ministry cited similar IMF reports for other countries, indicating much higher extreme scenarios for the USA, UK, and China.

Additionally, the finance ministry has underscored that the same report suggested that under favourable circumstances, India’s General Government Debt to GDP ratio may decline to below 70% in the same period. Hence, any interpretation implying that the report indicates an inevitable exceedance of 100% of GDP in the medium term was deemed misconstrued.

In addition, the ministry highlighted that global economic shocks experienced by India, such as the global financial crisis, Taper Tantrum, COVID-19, and the Russia-Ukraine War, have had a uniform impact on all economies in an interconnected and globalised world. It stated that India has performed relatively well in comparison to other countries, with the General Government debt declining from about 88% in FY 2020-21 to around 81% in 2022-23. Furthermore, the Centre is on track to achieve its fiscal consolidation target to reduce fiscal deficit below 4.5% of GDP by FY2025-26.

Through this statement, the finance ministry aimed to clarify and counter the implications of the IMF report on India’s debt situation. It provided a detailed breakdown of the country’s debt structure and its resilience amidst global economic shocks.

Overall, the ministry’s response addressed and refuted the IMF report’s assertions, while also highlighting India’s relative performance in managing its general government debt. This detailed and comprehensive response serves as a robust defence of India’s fiscal position in the face of international scrutiny.