A sovereign rate cut may not be needed, given the high level of government debt. But, the country will require a “credible debt management roadmap”, experts told the Business Standard.
Experts have said the debt to gross domestic product (GDP) ratio is likely to be around 90 percent in FY21 and its liabilities may remain high during FY22 as well due to demand for fiscal expansion, as per the report.
They further projected that “signals” would be clearer post the upcoming Budget 2021.
Central debt reached 56.2 percent of GDP till September 30 alone, against 46.5 percent in FY20, and debt for full FY21 is expected to be higher due to shrinking economy and rise in liabilities, it said, adding that the economy is officially projected to shrink 4.2 percent in FY21 at current prices.
For states, outstanding liabilities were 25.8 percent till March 2020 and assuming the trend is unchanged till September FY21, combined liabilities of Centre and states could cross 80 percent.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
Fitch Ratings’ Thomas Rookmaaker estimates debt to be 89 percent of GDP, while Soumya Kanti Ghosh, CEA of SBI Group projects it at 87.6 percent of GDP.
Rookmaaker however said a sovereign ratings downgrade could be triggered in case of failure to reduce fiscal deficit even after the COVID-19 pandemic lessens. For this he said indications for the Centre’s medium-term fiscal plans could come in the Budget.Brickworks Ratings M Govinda Rao also noted that “steps to achieve debt sustainability once normalcy is restored” would be key.