4th January 2024 (8 Topics)
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The dispute on India’s debt burden
Context:
Raised concerns about the long-term sustainability of India’s debts.
IMF Concerns on India's Debt Sustainability
- Debt Sustainability Alarm: IMF raises concerns over India's long-term debt sustainability, projecting it to be 100% of GDP by 2028, emphasizing the need for prudent management.
- Climate Change and Investments: The report highlights the impact of climate change, urging India to secure concessional financing, enhance private sector investments, and implement carbon pricing for climate resilience.
- Finance Ministry's Response: The Finance Ministry dismisses IMF projections as a worst-case scenario, asserting it is not inevitable.
Global Debt Conundrum
- Debt's Development Role: Government borrowings can accelerate development, yet excessive debt can impede growth, hinder access to financing, and lead to rising borrowing costs and sluggish economic performance.
- Global Debt Trends: Worldwide, public debt has surged, reaching a record USD 92 trillion in 2022, with developing countries, including India, facing challenges exacerbated by the COVID-19 pandemic, cost-of-living crisis, and climate change.
- Debt Burden on Developing Nations: Developing countries, particularly in Africa, face higher borrowing costs than developed nations, impacting debt sustainability and leading to increased interest spending as a share of public revenues.
India's Credit Rating Challenges
- IMF's Rating Context: While India is recognized as the fastest-growing major economy, credit rating agencies maintain a stable outlook of 'BBB-', the lowest investment grade, since 2006.
- Rating Agencies' Perspective: Fitch Ratings and S&P Global Ratings cite weak fiscal performance, burdensome debt, and low per capita income as factors restraining India's credit rating improvement.
- Debt-GDP Ratio and Fiscal Challenges: India's debt-to-GDP ratio remains high, slightly exceeding FRBMA targets. The emerging signs of fiscal slippage in FY24 pose challenges, with increased subsidies and potential budgetary pressures in an election year.
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