While governmental debts are rising globally, India’s general government debt will moderate to 77 per cent of GDP by FY31 and further to 71 per cent by FY35, from the current level of 81 per cent, a report said on Wednesday.
The report from the ratings firm CareEdge Ratings attributed this decline to Centre’s fiscal consolidation and sustained GDP growth of approximately 6.5 per cent.
However, the firm maintained that the sticky aggregate state debt amid the distribution of freebies by some states remains a monitorable going forward.
While India’s government debt is projected to moderate, the elevated interest payments relative to revenue receipts are expected to remain a challenge, the report flagged.
The report, titled Global Economy Update, said that higher inflation in most developed economies is being driven by persistent core pressures, rising service costs, increasing wages, and a surge in debt levels.
Additionally, rising tariffs have contributed to inflation in the US, the report noted.
In contrast, inflation is moderating faster in emerging markets due to earlier monetary tightening, a relative weakening of the USD and declining food prices. Thus, it provides monetary space for interest rate cuts, the ratings agency said.
The US Federal Reserve had lowered its policy rate by 25 basis points in September and has indicated two more cuts this year. CareEdge ratings flagged that a prolonged government shutdown could weaken consumer and investor sentiment and slow overall economic activity.
Inflation in Japan has been easing but has consistently stayed above the central bank’s 2 per cent target for more than three years. The market expects a potential rate hike by the Bank of Japan by the end of the year, the report said.
CareEdge had earlier this month noted that many advanced economies, including Greece, the US, France, Italy, Spain, the UK, and Canada, have limited fiscal capacity for increased military expenditure due to already elevated debt levels. It also warned that China’s official debt figures exclude augmented liabilities, potentially understating fiscal constraints.
