In News
- The IMF has projected that India will grow at 9.5% and 8.5% this fiscal year and next after a contraction of 7.3% last year in its latest World Economic Outlook report.
- India’s debt to GDP ratio increased from 74% to 90% during the COVID-19 pandemic.
- It is a cause of concern.
Debt to GDP Ratio
- The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP).
- By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts.
- Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment.
- As per FRBM Act, the Debt to GDP ratio should be around 60%.
- 40% for Central Government
- 20% for the State Government.
Impact of High Debt to GDP ratio on Economy
- Crowding Out Effect.
- Major Part of Budget going to Interest Payments.
- Poor ratings by Credit Rating Agencies.
- Higher Borrowing Cost.
Source: TH
