Public Debt in India: Moving Towards a Prudent Level?

OECD Economics Department Working Papers No. 1400

Posted: 18 Dec 2017

See all articles by Isabelle Joumard

Isabelle Joumard

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Peter Hoeller

Organization for Economic Co-Operation and Development (OECD)

Jean-Marc Fournier

Organization for Economic Co-Operation and Development (OECD)

Hermes Morgavi

Organization for Economic Co-Operation and Development (OECD)

Date Written: August 25, 2017

Abstract

In relation to GDP, India's public debt and interest payments are high compared with most other emerging economies and rating agencies have put India's sovereign debt at the lowest investment grade. On the other hand, India benefits from strong economic growth and needs to increase spending on social and physical infrastructure to support economic growth and to meet the needs of its fast-growing population. This paper assesses recent fiscal developments in India, discusses the threshold beyond which debt has adverse effects on the economy, quantifies the uncertainties surrounding key macroeconomic variables and the risks of overshooting the debt threshold to define a "prudent" debt level. It also provides a debt sustainability analysis. It concludes that under a "no-policy change" scenario, the debt-to-GDP ratio will decline gradually to close to the "prudent" level by 2040. However, adverse shocks could derail this benign scenario.

Keywords: India, fiscal policy, prudent debt, public finance sustainability

JEL Classification: H63, H68

Suggested Citation

Joumard, Isabelle and Hoeller, Peter and Fournier, Jean-Marc and Morgavi, Hermes, Public Debt in India: Moving Towards a Prudent Level? (August 25, 2017). OECD Economics Department Working Papers No. 1400, Available at SSRN: https://ssrn.com/abstract=3026264

Isabelle Joumard (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Peter Hoeller

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Jean-Marc Fournier

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Hermes Morgavi

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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