India's debt burden is high, but it is sustainable at the moment: NCAER Director General Poonam Gupta

India's debt burden is high, but it is sustainable at the moment: NCAER Director General Poonam Gupta


NCAER Director General Poonam Gupta said India's public debt is about 82% of GDP, which is very high, but the country is not facing debt sustainability problems due to high growth rate and high share of local currency debt.

NCAER Director General Poonam Gupta said India's public debt is equal to about 82% of GDP, but the country does not face debt sustainability problems due to high growth rate and high share of local currency debt. | Photo Credit: iStockphoto

NCAER Director General Poonam Gupta said India's public debt is about 82% of GDP, which is very high, but the country is not facing debt sustainability problems due to high growth rate and high share of local currency debt.

Participating in an event organised by NCAER, Ms Gupta said India's high debt level is sustainable at the moment, as real or nominal GDP is high and most of the debt is in rupees.

Ms Gupta said states account for a third of the total debt, and under “normal circumstances”, their debt levels will increase further over the next five years.

“The debt-to-GDP ratio could rise to 50% in some states like Punjab and Himachal Pradesh,” Gupta said. These states, including the most indebted ones, will not face sustainability problems as they have the implicit guarantee of the Centre and states cannot hold foreign currency or floating rate debt, he added.

Comparing Punjab, one of the most indebted states, and Gujarat, which has the least debt, he said that the states with the highest debt are ironically in a better position as the interest rates are the same for all and in fact the states with higher debt have longer maturity periods and pay lower premiums.

“The more prudent states need a better deal. They are virtually subsidising the more indebted states. The Finance Commission can reward such states for their fiscal prudence, and encourage the profligate states to become more fiscally responsible,” Gupta said.

Participating in a discussion on “Fiscal Challenges of States”, M Govind Rao, Councillor, Takshashila Institution, cited “proliferation of subsidies for electoral gains” as one of the reasons for the rising debt of states.

Pointing to the overall responsibility of controlling debt on the Central government and stressing the need for a different approach, he said, “Interest payments by profligate states are still considered valid.”

By the year 2022-23, Punjab, Himachal Pradesh, and Bihar are the top three most indebted states, while the least indebted states are Odisha, Maharashtra, and Gujarat.


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