top of page
  • InduQin

India Can’t Afford to Go on a Debt Binge

India’s economy has suffered more than most from the pandemic and so have its people. The country has lost more than a year’s worth of growth and perhaps a decade’s progress in its efforts to reduce poverty. The economic contraction — the first in India since the 1970s — has put pressure on its government like so many others to respond.

Until this week, that response had been relatively restrained. Prime Minister Narendra Modi’s government seemed to recognize that there was only so much it could do to address the economic contraction, especially while the pandemic is still raging. By its actions, the government implied that any welfare-promoting and growth-enhancing measures had to stand on a solid macro-economic foundation.

The federal budget for the next financial year, which starts in April, has poked a hole in this optimistic narrative. Not only has the fiscal deficit for the current year exploded to 9.5% of GDP — two percentage points higher than the consensus estimate, but still defensible for a pandemic year — next year’s deficit is now forecast to reach almost 7%. The government has effectively abandoned its long-term commitment to bring the deficit down to close to 3% of GDP, pitching instead for a gentle descent to 4.5% — six years from now.


2 views0 comments
bottom of page