India’s government debt to GDP is projected to drop from 81% to 71% by FY35 due to fiscal discipline and steady growth, despite rising state debts
New Delhi
India’s overall government debt is expected to decline to 77 percent of GDP by FY31 and further to 71 percent by FY35, compared to the current 81 percent, according to a report by CareEdge Ratings released on Wednesday.
The report credited this fall to the Centre’s fiscal discipline and a steady GDP growth rate of around 6.5 percent. It said India’s fiscal consolidation efforts are showing positive results, even as global government debts continue to rise.
However, CareEdge warned that the rising state-level debts, mainly due to distribution of freebies, remain an area to watch. It also cautioned that high interest payments compared to government revenues could still pose fiscal challenges in the coming years.
In its Global Economy Update, CareEdge highlighted that most developed economies are struggling with persistent inflation, driven by rising service costs, higher wages, and increased debt levels. The report noted that rising tariffs have also contributed to US inflation.
In contrast, emerging economies, including India, are witnessing faster inflation moderation due to earlier monetary tightening, a weaker US dollar, and lower food prices, providing room for possible interest rate cuts.
The report mentioned that the US Federal Reserve reduced its policy rate by 25 basis points in September and may announce two more cuts this year. Meanwhile, Japan’s inflation remains above the central bank’s 2 percent target, raising expectations of a possible rate hike soon.
CareEdge also noted that advanced economies face limited fiscal space for military spending due to already high debt burdens, while China’s debt data might not fully reflect its hidden liabilities.
