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Published on 26/08/2020 4:48:25 PM | Source: IANS

`Rise in government debt to impact public spending in coming decade`

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India's general government debt is likely to remain high in the years to come and will significantly impact the government's ability to spend in the upcoming decade, according to a report by Motilal Oswal Financial Services.

The EcoScope report said that India's general government debt, or the overall debt of the Centeal and the state governments, is expected to reach 91 per cent of GDP in the current fiscal and is likely to stay above 90 per cent of the GDP till FY23.

It added that after FY23, the general government debt levels will moderate to 80 per cent by FY30. The general government debt rose to 75 per cent of GDP in FY20 from 70 per cent in FY18.

"This surge in India's government debt-to-GDP ratio would restrict its ability to grow its spending significantly and support economic activity in the 2020s decade, as it has done in the past few years," it said.

While real GDP growth averaged at 6.8 per cent between FY14 and FY20, real fiscal spending grew at an average of 9 per cent during the period. In FY20, while real GDP growth weakened to 4.2 per cent, fiscal spending is estimated to have contributed 1.1 percentage points or 27 per cent to annual real GDP growth.

The study noted that if primary spending growth eases to 7.3 per cent over the next decade from 11.3 per cent in the past decade, it becomes apparent that the government would be unable to grow its investments (capital outlays) at the same pace as in the past decade.

"Since a large part of non-interest revenue spending (such as defence, salary & wages, pensions etc) is fixed or non-discretionary in nature, there is a high possibility fiscal investment would grow at an even slower rate in the 2020s decade," the report said.

Either the government would have to rationalise its spending or the idea of government investments growing decently in the 2020s decade would remain a distant dream, it added.