India has high debt like China, but risks are moderated: IMF

IMF official advises India to have ambitious fiscal consolidation plan to bring down deficits. Debt is high but risks moderated by long maturities, domestic holdings, and high growth. Suggests revenue and spending reforms, public investments, and improved fiscal management.

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, a senior official from the International Monetary Fund has said, advising India in the medium term to have an ambitious fiscal consolidation plan that brings down deficits.

"The current debt in India is also high. It stands at 81.9% of GDP. Compared to China, which is 83%, it is very similar. Also, when we compare India's debt to the pre-pandemic level in 2019, it was 75%. So it is still quite a bit higher," Ruud de Mooij, Deputy Director, Fiscal Affairs Department at International Monetary Fund, told PTI in an interview.

"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% of GDP is spent on that, and the primary deficit is 3.45. So together they add up to 8.8%," he said.

Responding to a question, Mooij said 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.

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 said.

"One factor is, for instance, the long maturities of the debt. They don't need to be renewed very frequently. This matters for the gross financing needs. And also, in India we see a large domestic domestically held debts and also denoted in domestic currency. So these mute the risks associated with the debts," he said.

The risk factor in India is the state level risks, he observed. "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," he said.