Table of Contents
WHAT IS THE DEBT-TO-GDP RATIO?
- The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP).
WHAT DOES THE DEBT-TO-GDP RATIO INDICATE?
- As a rule, the higher a country’s debt-to-GDP ratio climbs, the higher its risk of default becomes.
- When a country defaults on its debt, it often triggers financial panic in domestic and international markets.
STATUS PAPER ON GOVERNMENT DEBT
- Since 2010, the central government has been publishing an annual Status Paper on Government Debt that provides a detailed account of the overall debt position of the country.
- This was the ninth paper of the series.
- The central government’s debt as a percentage of gross domestic product (GDP) dropped marginally by 0.1% from 8% in fiscal 2017-18 to 45.7% or Rs 86.73 lakh crore.
- The general government debt to GDP ratio, which includes the combined debt of the Centre and states,
- Declined by the same percentage from 7% in March 2018 to 68.6% or Rs 1.3 crore crore (Rs 130 trillion)
INTERNAL DEBT & EXTERNAL DEBT
- The government’s finances were largely protected from currency risks as external debt stood at 7% of GDP or Rs 5.12 lakh crore in FY19.
- On the other hand, 1% of the Centre’s liabilities consisted of domestic debt in FY19.
WHO IS RESPONSIBLE FOR RAISING DEBT?
- The government debt is managed by the country’s central
- The national debt is managed by a bank division, called the Public Debt Office (PDO).
HOW THE DEBT IS RAISED BY?
- The Reserve Bank of India raises debt for the Government of India through a range of instruments, which the RBI calls “G-Secs”
- The tenure of the longest security was 37 years.
- The average interest cost (AIC) for the Centre remained unchanged over FY18 to FY19 at 1%.
- Primary deficit is the fiscal deficit of current year minus interest payments on previous borrowings.
WHAT SHOULD BE THE IDEAL DEBT TO GDP?
- A study by the World Bank found that countries whose debt-to- GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns in economic growth.
- Pointedly: every percentage point of debt above this level costs countries 1.7% in economic growth.
- This phenomenon is even more pronounced in emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%.
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