SME Times News Bureau | 20 Jul, 2020
The
economic turbulence due to Covid-19 is expected to push India's debt-to-GDP
ratio higher, according to a SBI Ecowrap report on Monday. Together with the
declining GDP growth, debt-to-GDP ratio has been adversely affected in all
countries.
"India's debt-to-GDP ratio has increased gradually from Rs 58.8 lakh crore
(67.4 per cent of GDP) in FY12 to Rs 146.9 lakh crore (72.2 per cent of GDP) in
FY20," it said. Higher borrowing this fiscal was likely to increase the
gross debt to around Rs 170 lakh crore (87.6 per cent of GDP), it added.
According to the report, external debt is estimated to increase to Rs 6.8 lakh
crore (3.5 per cent of GDP) in the expected gross debt for FY21.
"Of the remaining domestic debt, component of state's debt is expected at
27 per cent of GDP. Interestingly, the GDP collapse is pushing up the
debt-to-GDP ratio by at least 4 per cent, implying that growth rather than
continued fiscal conservatism is the only mantra to get us back on track,"
it said.
"We reiterate the current thinking of rating downgrade in policy circles
is a false negative as India's rating is likely to face a litmus test of
downgrade in FY21, depending on what we have done to bring growth back to
track," the SBI Ecowrap report said.
This higher debt amount will also lead to shifting of the FRBM target of
combined debt to 60 per cent of GDP by FY23 by 7 years with the target now seem
achievable in FY30 only.
"The moot point is the sustainability of the debt. The current foreign
exchange reserves are sufficient to meet any external debt obligations. On the
internal debt, since most debt is domestically owned, its servicing is not an
issue," it said.
"In the current situation, our nominal GDP growth is likely to contract
significantly and based on this our interest-growth differential will turn
positive in FY21, thus raising serious questions on debt sustainability,"
the SBI Ecowrap report said.