By Arul Louis
United Nations, April 18 - India has a high debt to gross domestic product (GDP) ratio, but the government's goals to bring them down in the medium term are appropriate and it is using "the right policies,", an IMF official said on April 18.
Answering a question at a news conference in Washington about India's high debt to GDP ratio, Abdel Senhadji, a deputy director at the International Monetary Fund (IMF), said that the authorities were aware of the problem and were proposing a fiscal consolidation plan in the 2017-18 fiscal year to deal with it.
"They are, of course, targeting a federal deficit of 3% over the medium term and they are targeting a debt ratio of 40% over the medium term at the federal level, which correspond to about 60% at the general government level.
"And we believe that those targets are appropriate. I think, the debt levels are relatively high, but the authorities are planning to bring it down over the medium term with the right policies."
Senhadji, who is with the IMF Fiscal Affairs Department, said that the overall outlook for India in the short-term and medium-term remain "quite favourable."
"Growth has picked up to about seven and half% in 2017 and is projected to pick up in 2018, and over the medium term, it is actually projected to reach about 8%, one of the highest in the world," he added.
The Fiscal Monitor report released April 18 said that the general government debt of 70.2% in 2017 was expected to come down to 68.9% in 2018 and 67.3% in 2019 and taper off to 61.4% by 2023.
The report, however, said that the fiscal consolidation was paused in fiscal year 2017-18 at the federal level because of the disruptions caused by demonetisatioin and the rollout of the GST.
"Relatively buoyant revenues supported by base-broadening efforts and lower capital expenditures were offset by higher spending (including higher compensation to states for the rollout of the new goods and service tax) and lower profit transfers from the Reserve Bank of India due to costs incurred during the demonetisation," it said.
But it added that fiscal consolidation is expected to resume in the 2018-19 fiscal year.
The report emphasised that a "full and smooth implementation of the new goods and services tax is necessary to avoid tax revenue underperformance resulting in cuts to capital expenditures".
It added that "reductions in fuel and food subsidies, and tax reform" were also needed in the medium term.