India’s debt to GDP ratio could reach closer to 100 percent if the government attempts to fill the annual 3.4 percent of GDP gap in climate mitigation and adaptation until 2030, Moody’s Ratings said in a report released September 23.
The rating agency noted that if India were to fill the climate mitigation and adaptation gap by 2030, it would spend more than comparable economies, barring South Africa and Brazil.
“Among EMs, debt would rise materially in South Africa, Brazil and India; these governments' fiscal buffers are also more constrained given their very high debt burdens,” Moody’s Ratings said.
The rating agency predicts India’s debt-to-GDP ratio to be 78 percent by 2030.
In the United States, the debt-to-GDP ratio would jump 11 percentage points to 137 percent of the GDP from 126 percent in the baseline scenario.
The report pointed out that the jump would be 40 percentage points for Africa, 21 for Brazil, and 18 for Mexico.
“While raising climate investment would increase government spending and debt burdens, the cost of inaction on the economy and society would be greater. Our parallel research shows that EM Asia, including India, would benefit most from an early and coordinated clean energy investment shift, reflected in high potential income gains,” Moody’s Ratings noted.
India’s burden could be significantly reduced if the government could engineer a private-sector solution. In that scenario, the debt to GDP ratio would only rise by eight percentage points to 86 percent, while South Africa, Brazil, and Mexico would all witness a higher jump in debt ratios.
“The IMF and World Bank (IBRD, Aaa stable) highlight that the most efficient mitigation instrument is carbon pricing,12 as it promotes a full range of behavioural responses to reduce energy use and shift to low-carbon fuels,” the report highlighted.
The Indian government would need to spend just 1.3 percent of GDP annually in case private sector were also to step in, Moody’s said.
The cost of climate mitigation is expected to be $186 billion each year until 2030. Adaption is expected to cost less than half of that amount each year.
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