India has high debt like China but risks associated with it are moderated: IMF

12 Oct 2023 Evaluate

Advising India in the medium term to have an ambitious fiscal consolidation plan that brings down deficits, the International Monetary Fund’s Deputy Director, Fiscal Affairs Department, Ruud de Mooij said that India has a high debt like that of China but the risks associated with it are not as great as that of its northern neighbour. He said ‘The current debt in India is also high. It stands at 81.9 per cent of GDP. Compared to China, which is 83 per cent, it is very similar. Also, when we compare India's debt to the pre-pandemic level in 2019, it was 75 per cent. So it is still quite a bit higher’.

He further said ‘What we also see in India is a deficit that is 8.8 per cent projected for 2023. In India, a large portion of this is because of expenditures on interest. They pay a lot of interest on their debt: 5.4 per cent of GDP is spent on that, and the primary deficit is 3.4 per cent. So together they add up to 8.8 per cent’. He added that India's debt is not projected to rise like in China. It, in fact, is projected to fall slightly by 1.5 per cent to 80.4 per cent in 2028.

He said one of the reasons is that growth in India is much higher. India is one of the countries with really high growth. This matters of course for the debt to GDP ratio. Also, just to note that the risks are moderated by some factors. He observed the risk factor in India is the state level risks. Some states really have high debts, have high financing needs and face a high interest burden. This is a factor that does mean that there are significant risks also for India.

Mooij said one of the ways in which India could usefully support fiscal consolidation is by strengthening the tech system. There are several opportunities in India. There are opportunities in the general sales tax, which has multiple rates, many exemptions, and maybe not all of them are effective. Improving the design of the general sales tax could contribute to this. He also see opportunities for broadening the base of the personal income tax and the corporate income tax where there are many loopholes that can often be addressed.

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