Study Predicts Lower Debt to GDP Levels for India by 2031

The Indian government is making progress, according to a study by RBI. The study suggests that by 2030-31, India’s debt compared to its economic output could decrease to 73.4%, which is 5 percentage points lower than what the IMF expects. However, more measures are needed to ensure sustainable growth.

The research indicates that the government should spend more on development to address the country’s growth requirements. The study forecasts that by 2030-31, India’s general government debt could drop to 73.4%, a decrease of 5 percentage points from the IMF’s projection of 78.2%.

This insight comes from a paper authored by Michael Debabrata Patra, Samir Ranjan Behera, Harendra Kumar Behera, Shesadri Banerjee, Ipsita Padhi, and Saksham Sood. It’s important to note that these views may not necessarily reflect those of the Reserve Bank of India.

The authors suggest that with adjustments in government spending, India’s general government debt could decrease to 73.4% by 2030-31. This is crucial because India’s general government debt could surpass 100% of its GDP in the medium term, indicating the need for further fiscal discipline.

The study’s baseline projection indicates a steady decline in the debt-to-GDP ratio, reaching 77.4% by 2030-31. This finding is significant considering that for advanced economies, the debt-to-GDP ratio is expected to rise from 112.1% in 2023 to 116.3% in 2028, and for emerging and middle-income countries, from 68.3% to 78.1%.

The study emphasizes the importance of the government’s commitment to reducing the fiscal deficit while maintaining a focus on capital expenditure. Additionally, it highlights the long-term benefits of investing in social and physical infrastructure, climate action, digitalization, and workforce development.

In the broader context, the study contrasts with an IMF publication, which discusses the challenges policymakers face in balancing climate objectives, debt sustainability, and operational feasibility. These trade-offs are particularly pronounced in developing countries, where developmental priorities take precedence.

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