{"id":225694,"date":"2023-02-08T20:41:49","date_gmt":"2023-02-08T15:11:49","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=225694"},"modified":"2023-02-20T14:12:25","modified_gmt":"2023-02-20T08:42:25","slug":"india-must-reduce-its-public-debt-ratio-to-build-economic-resilience","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/india-must-reduce-its-public-debt-ratio-to-build-economic-resilience\/","title":{"rendered":"India must reduce its public debt ratio to build economic resilience"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cIndia must reduce its public debt ratio to build economic resilience\u201d <\/strong>published in the mint<\/strong> on 8th February 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Government budgeting<\/p>\n

Relevance<\/strong>– Issues related to public debt and government borrowing<\/p>\n

News<\/strong>– The new budget has a credible plan to reduce the fiscal deficit as a proportion of India GDP.<\/p>\n

What are the implications of high public debt ratio for macroeconomic policy over the medium term?<\/strong><\/h2>\n

Interest cost of servicing this public debt <\/strong>reduces the capacity of the government to spend on essential things<\/strong> like infrastructure, welfarism and defence.<\/p>\n

It reduces the capacity <\/strong>of the government in responding to future shocks.<\/p>\n

RBI ability to conduct independent monetary policy<\/strong> to control inflation is impacted.<\/p>\n

How can public debt be managed?<\/strong><\/h2>\n

Any strategy to reduce public debt needs to be built on three pillars<\/strong>–<\/p>\n

There must be acceleration in nominal GDP growth<\/strong>.<\/p>\n

Acceleration in nominal GDP growth should be seen in context of the cost of government borrowings<\/strong>.<\/p>\n

The focus of fiscal policy must be to reduce not only the headline deficit but also the primary deficit<\/strong>.<\/p>\n

The experience of previous decades provides us with useful context. Public debt<\/strong> came down by 17% between 2002 and 2011. This period can be broken down into two.<\/p>\n

The first part of success was because of the high growth rate<\/strong>. It led to a sharp fall in primary deficit<\/strong>. In the second part, nominal GDP grew at a fast pace<\/strong> despite the global financial crisis. This was possible by high inflation<\/strong>.<\/p>\n

What is the future scenario of public debt for the Indian economy?<\/strong><\/h2>\n

Trajectory of public debt will depend on growth in economic output, inflation, interest rate and fiscal policy.<\/p>\n

Nominal GDP<\/strong> in coming years is likely to be in very low double digits<\/strong>, unless there is structural shift in potential growth and inflation<\/strong>. The gap between nominal GDP and inflation will be low.<\/p>\n

So, the automatic drivers <\/strong>bringing down public debt will not work. Government will have to use fiscal policy to bring down the primary deficit<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cIndia must reduce its public debt ratio to build economic resilience\u201d published in the mint on 8th February 2023. Syllabus: GS3- Government budgeting Relevance– Issues related to public debt and government borrowing News– The new budget has a credible plan to reduce the fiscal deficit as a… Continue reading India must reduce its public debt ratio to build economic resilience<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10501],"class_list":["post-225694","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/225694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=225694"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/225694\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=225694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=225694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=225694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}