Centre’s debt-to-GDP falls, States’ rises

Centre’s debt-to-GDP falls, States’ rises

News

According to the Status Paper on Government Debt for 2017-18, Centre’s debt-to-GDP has fallen while State’s debt-to-GDP increased

Important facts

1. Centre’s total debt as a percentage of GDP reduced to 46.5% in 2017-18 from 47.5% as of March 31, 2014.
2. Total debt of the States rose to 24% in 2017-18 (increase of 63%), and is estimated to be 24.3% in 2018-19.
3. Outstanding liabilities of States have increased sharply during 2015-16 and 2016-17, following the issuance of UDAY bonds
4. Further, ratings agencies have predicted that the combined fiscal deficit of the States to be 3.2% of GDP in financial year 2020
5. State governments showed a tendency to hold large cash surpluses/investments in Cash Balance Investment Account on a consistent basis and resorted to market borrowings to finance their GFD (Gross Fiscal Deficit)

Additional facts

Debt-to-GDP Ratio: It is the ratio between a government’s debt and its gross domestic product (GDP)

NK.Singh Committee on Fiscal Responsibility and Budget Management

1. It recommended that the debt-to GDP ratio should be 40% for the Centre and 20% for the States, respectively, by 2023.
2. It said that the 60% consolidated Central and State debt limit was consistent with international best practices, and was an essential parameter to attract a better rating from the credit ratings agencies.