Context

Status Paper on Government Debt for 2017-18 has been released by the Minister of Finance, Government of India.

About

Status Paper on Debt Management

• The Government has been publishing an annual Status Paper on Government Debt since 2010-11, which provides a detailed analysis of the Government’s debt position.
• The present Status Paper for 2017-18 is eighth in this series and reinforces the Government’s commitment to keep the level of public debt within sustainable limits and to follow prudent debt management practices.
• The objectives of debt management strategy are to mobilise borrowings at low cost over the medium to long-term, with prudent level of risk and stable debt structure, while also developing a liquid and well-function in secondary domestic debt market.
• Gross fiscal deficit (GFD) as a percentage of GDP has declined from 5.9 per cent in 2011-12 to 3.5 per cent in 2017-18 (RE).
• The major sources of financing the gross fiscal deficit of the Central Government are market borrowings, small savings, State provident funds, external assistance and short term borrowings.

Debt to GDP

• Fiscal consolidation effort of the Centre under the umbrella of Fiscal Responsibility and Budget Management (FRBM) Act, resulted in reduction of total liabilities from 47.5 per cent of GDP in March, 2014 to 45.9 per cent of GDP in March, 2017.
• The increase in liabilities in March, 2018 is primarily on account of special securities issued for recapitalisation of PSBs.
• The increase in General Government Debt (GGD)-GDP ratio from 67.1% (2013-14) to 68.2% (2017-18) is primarily on account of higher borrowing by the States.

External Debt

• 8 % of total Central Government debt at end-March 2018 was denominated in Indian currency.
• External debt constituted 2.9 per cent of GDP at end-March 2018, implying low currency risk to GoI debt portfolio and its impact on balance of payments remains insignificant.
• The limited external debt is entirely from official sources, providing safety from volatility in the international capital markets.

     Internal Debt

• The share of marketable securities in total internal debt, which was at 43 per cent of public debt (35.8 per cent of total liabilities) in 2000-01 increased to 93.0 per cent (82.1 per cent of total liabilities) at end-March 2018.
• The Government has also progressively moved towards alignment of administered interest rates with the market rates; revisions in interest rates on small savings schemes, General Provident Fund and similar funds, etc. are undertaken on a quarterly basis.
• Most of the public debt in India is contracted at fixed interest rates, with only around 1.8 per cent of internal debt being at floating rate at end-March 2018, insulating debt portfolio from interest rate volatility and providing certainty and stability to budget in terms of interest payments.

Government Securities

• The largely domestic and institutional investor profile contributes to stable demand for government securities. Ownership pattern of dated securities indicates a gradual broadening of market over time.
• The commercial banks remain the dominant holders even as their share declined from 61 per cent at end-March 2001 to 42.7 per cent at end-March 2018, which may partly be attributed to reduction in SLR requirements (from 25 per cent of NDTL of banks to current requirement of 19.50 per cent).

The Insurance Companies and Provident Funds account for 23.5 per cent and 5.9 per cent respectively, of government securities; creating stable demand for long-term securities.

Debt Management Strategy Government published its first Debt Management Strategy (DMS) (earlier published across various documents of the Government and RBI) on December 31, 2015. Since then, it is being published as a part of Status Paper on Debt Management. The DMS document comprises of Objectives and Scope of DMS; Debt Profile of Central Government: Current Status and Strategic Objectives and Medium-Term Debt Strategy. The objective of the DMS is to ensure that the government's funding requirements are met at all times at low cost over the medium /long-term while avoiding excessive risks. The DMS has been articulated for the medium-term for a period of three years and is reviewed annually and rolled over for the next three years. The Government's borrowing programme are planned and executed in terms of DMS.