debt-to-GDP ratio Current Affairs - 2020

Status Paper on Government Debt released

On May 22, 2020, the Ministry of Finance released Status Paper on Government Debt 2018-19. According to the report, the overall debt of centres and states declined by 68.7% in March 2018 to 68.6% in 2019.

Highlights

The Status Paper on Government Debt is being produced by the Ministry of Finance since 2010. Current debt of India stands at Rs 1.3 crore crore.

Key Findings of paper

The debt of central government dropped marginally from 45.8% in 2017-18 to 45.7% in 2019, The external debt was 2.7% of GDP. The Average Interest Cost of the centre remained unchanged in the year 2018 to 2019. Around 94% of centre’s liabilities were of domestic debts.

The tenure of the longest security was 37 years.

Government Debt

The Government Debts are classified as internal debt and external debt. The Internal Debts include non-marketable and marketable debt. External debt refers to debt borrowed from all the sources outside the country.

Government Liabilities are classified into liabilities in public account and debt contracted against Consolidated Funds of India.

Why India needs watch-dog for Fiscal Discipline?

The Chairman of the Fifteenth Finance Commission N K Singh has pitched for a fiscal council to enforce fiscal rules and better manage public debt.

Why Fiscal Council?

  • For state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there are no such restrictions on the Centre Hence there is a need for an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.
  • An institutional mechanism for sound fiscal practices will bring in transparency, instil confidence among domestic and foreign investors and improve policy outcomes.
  • An institutional mechanism will also prevent practices such as accounting jugglery to show the Centre’s finances in better shape, undermining the sanctity of the budget numbers.
  • Even the CAG has underscored the need for proper disclosures, saying that budgets often understate fiscal deficits by misusing accounting loopholes.
  • The Fiscal Responsibility and Budget Management (FRBM) Review Committee had also recommended setting up an autonomous council. Even the 13th and 14th finance commissions had favoured the setting up of a Council to keep tabs on budget forecasts and their veracity.

India’s debt-to-GDP ratio of the states and the Centre combined is also way too high at 70%. An independent Fiscal Council will streamline the fiscal discipline.

Recommendation of Fiscal Responsibility and Budget Management Review Committee

The Fiscal Responsibility and Budget Management Review Committee had outlined the functions like Preparing multi-year fiscal forecasts, recommending changes to fiscal strategy, improving the quality of fiscal data and advising the government if conditions exist to deviate from the fiscal target and advising the government to take corrective action for non-compliance with the Bill for the fiscal council.