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Saturday 18 January 2020

IMF appreciates India’s policies to lower high debt level

In fiscal year 2017-18, India is planning to continue with the consolidation in the current fiscal year and over the medium term, the top IMF official said

Washington: India’s general government debt remained relatively high, at 70% of the GDP in 2017, but New Delhi is trying to lower it using “the right policies”, Abdel Senhadji, Deputy Director, IMF Fiscal Affairs Department, told reporters at a news conference here.

In the fiscal year 2017-18, India is planning to continue with the consolidation in the current fiscal year and over the medium term, the top IMF official said.

The FRBM committee led by NK Singh has recommended that Public debt to GDP ratio should be considered as a medium-term anchor for fiscal policy in India. The combined debt-to-GDP ratio of the centre and states should be brought down to 60% by 2023 (comprising of 40% for the Centre and 20% for states) as against the existing 49.4%, and 21% respectively.

The Committee also advocated fiscal deficit as the operating target to bring down public debt. For fiscal consolidation, the centre should reduce its fiscal deficit from the current 3.5% (2017) to 2.5% by 2023.

Justifying the target of 2.5% to be realized in the next six years, the Committee observed that debt sustainability analysis (DSA) conducted for the central government suggests such a target (for fiscal deficit) will help to achieve the public debt target of 40% for the centre by 2023.

The Committee also recommends that the central government should reduce its revenue deficit steadily by 0.25 percentage (of GDP) points each year, to reach 0.8% by 2023, from a projected value of 2.3% in 2017.

“They are, in fact, targeting their federal deficit of three percent over the medium term, and they are targeting also a debt ratio of 40% over the medium term at the federal level, which corresponds to about 60% at the general government level. And we believe that those targets are appropriate,” the IMF official said.

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