'India's public debt ratio to jump to 90% because of Covid'

Washington: India's public debt ratio, which remarkably remained stable at around 70 per cent of the GDP since 1991, is projected to jump by 17 percentage points to nearly 90 per cent because of increase in public spending due to COVID-19, the IMF said on Wednesday.

"In our projections, the increase in public spending, in response to COVID-19, and the fall in tax revenues and economic activity, will make public debt jump up by 17 percentage points to almost 90 per cent of GDP, Vitor Gaspar, Director of the IMF's Fiscal Affairs Department said. "Going forward it is projected to stabilise in 2021, before slowly declining up to the end of the projection period, in 2025. Broadly speaking the pattern of public debt in India is close to the norm around the world, he said.

According to Gaspar, India's public debt ratio has been remarkably stable since 1991. It is interesting to note that the debt ratio has been stable at around 70 per cent of GDP over the past decade, he said.

Responding to a question about his assessment of the fiscal situation of India, Gasper said India has been an important source of growth in the world since the 1991 economic liberalisation reforms. Real GDP growth averaged 6.5 per cent between 1991 to 2019, and real GDP per capita was multiplied by four over that period. This impressive growth performance helped lift millions of people out of extreme poverty, he said.

The extreme poverty rate, measured as the proportion of people whose income is less than $1.90 a day at purchasing power parity (the international poverty line), fell from 45 per cent in 1993 to 13 per cent by 2015 (date of the latest full extrapolation by the World Bank available last full evaluation, based on household surveys, goes back to 2011), he said.

India achieved the millennium development goal of halving poverty by 2015 (from its 1990 level), he said.

"India has made astonishing progress in other areas. Education enrollment is nearly universal for primary school. Infant mortality rates have been halved since 2000. Access to water and sanitation, electricity, and roads has been greatly improved," said the IMF official.

According to Gasper, in the near-term, additional fiscal action can and should be deployed as needed to support the poor and the vulnerable.

"This should be accompanied by a credible medium-term fiscal consolidation plan that can reinforce market confidence and structural reforms that boost India's growth potential, he added.