ECONOMY
India’s slow pace of debt reduction poses downside risk to sovereign rating
- IBJ Bureau
- Feb 04, 2025
India’s pace of debt reduction is gradual, leaving room for downside risk to sovereign rating in the eventuality of a significant economic shock, Fitch Ratings has said.
The government has provided greater clarity on its medium-term fiscal strategy in the Budget for 2025-26. The government will aim to manage fiscal deficits so as to keep Central government debt on a gradual downward trend to 50 per cent (+/- 1 per cent) of GDP by FY31, roughly 7 per cent of GDP lower than FY25. Such a path would require fiscal deficits to be sustained at or just below the 4.4 per cent of GDP deficit target in FY26 and is highly dependent on nominal GDP growth outcomes, Fitch has said.
On a general government basis, including the States, which Fitch tracks for the rating, it would imply deficits of around 7 per cent of GDP and debt in the low 70 per cent of GDP range by FY31.
“Increased confidence that the government can adhere to this medium-term fiscal framework and keep debt firmly on a downward path, would be positive for the sovereign rating over time. Still, the pace of debt reduction is gradual, which leaves open downside risks from a large economic shock,” Fitch has added.
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