India's debt China high, but risks manageable

An official from the International Monetary Fund (IMF) has compared India’s high debt levels to that of China but emphasized that the associated risks for India are relatively lower.

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The senior IMF official recommended that India should adopt an ambitious fiscal consolidation plan in the medium term to reduce its deficits.

India’s current debt stands at 81.9% of its GDP, which is comparable to China’s 83%. Furthermore, when compared to the pre-pandemic levels in 2019 when it was at 75%, India’s debt has increased, though not significantly.

The official noted that a considerable portion of India’s fiscal deficit, which is projected to be 8.8% for 2023, results from expenditures on interest payments. India allocates 5.4% of its GDP to servicing this interest, and the primary deficit amounts to 3.4%, combining to reach the 8.8% figure.

However, the official highlighted that India’s debt is not projected to increase like China’s. In fact, it is expected to decrease slightly to 80.4% by 2028. A significant factor contributing to this trend is India’s robust economic growth. The debt-to-GDP ratio is influenced by the country’s economic expansion, and this, in turn, moderates the associated risks.