Sangeeta Bose
Moneycontrol News
In the middle of all the whiplash against the Narendra Modi government ever since GDP growth rate slumped to 5.7 percent in the April-June quarter, data compiled from the IMF shows a silver lining: India’s national debt is projected to reduce over the course of the next few years.
The national debt as a percentage of GDP is a crucial figure that projects the actual net value of the GDP being generated in an economy and it largely depends on GDP growth rate.
Basically, the lesser national debt eats into the GDP, the more money generated in the economy, at the end of the day.
National debt as a proportion of the GDP hovered more or less around 69 percent between 2011 to 2016.
Now, the IMF data predicts that national debt as a share of GDP is all set to go down over the course of the next three years, with projections for 2017, 2018, 2019 and 2020 being at 67.8%, 66%, 64% and 62% respectively.
If the economy behaves as projected by the IMF it would be a welcome relief for the RBI and the Governor Urjit Patel who has made multiple statements that reduction in debt would give way to a much-needed credit rating upgrade for India’s economy.
Standard and Poor’s, a credit rating agency, said in November 2016 that it will consider improving India’s rating if its national debt falls below 60 percent of the GDP. In the same month, Moody’s had said that government debt is a “key constraint” on India’s credit ratings.
Patel has also maintained that “government borrowing cannot be a shortcut to long-lasting growth”.
Data from the RBI showed that India’s external debt was at USD 471.9 billion, showing a decline of USD 13 billion as compared to the previous year.
At the current rate, India’s GDP growth is expected to remain steady at more than 7 percent for the next few years, which also happens to be double of the current global GDP number.
Being one of the populous countries in the world, India’s GDP is presently on a slow and steady rise, which is mostly attributed to the services sector.
India's GDP, as per data from IMF, is expected to jump by USD 800 billion over the course of next three years, with a rise from present USD 2454 billion in 2017 to projected rise to USD 3252 billion in 2020.
In case the GDP growth rate falters due to some problem, the debt-GDP ratio becomes an even bigger concern.
World Bank president Jim Yong Kim on October 6 while commenting on the slowdown in the growth rate in the last quarter, said that GST will have a hugely positive impact on India's GDP.
He also added that the slowdown over the last two quarters is an ‘aberration’ owing to temporary disruptions in preparation for the GST.
However, there may not be any reason to cheer soon. Despite the projected reduction, standing at 67.7 percent of its GDP, India’s gross general debt is much higher than most other Asian economies.
Prime Minister Narendra Modi has promised to continue with the slew of reforms despite the temporary slag in GDP growth rate in the last quarter.
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