India's Public Debt: DEA Secretary on Moderation & Rating Upgrade

New Delhi, May 2 (PTI) India's elevated public debt, which results in fairly large interest outgo, needs to be moderated to get a rating upgrade from global rating agencies, Economic Affairs Secretary Ajay Seth said on Friday.

Speaking at ISAAC Centre for Public Policy Conference, he said India cannot remain fixated to a particular way in the midst of uncertainties.

"We have to be agile and as the things are evolving, we cannot take the things for granted. And today I feel India is close to USD 4 trillion economy, we have enough resilience to find whatever is the rest of the world doing, we have to find our way and I'm hopeful that we can find out," he said.

Observing that the current level of public debt continues to be elevated, he said, that needs to be moderated and that is a path for fiscal consolidation.

"One has to remain committed and deliver on that for two reasons, and one of the reasons why credit rating agencies look more cautiously towards India is the elevated debt level. That our capacity to withstand another crisis of the dimension of say Covid is limited at this point of time because the outgo on account of interest as a proportion of tax revenues is fairly large vis a vis say other countries like Indonesia," he said.

India is actively engaged with the rating agencies for rating upgrade. Rating agencies give a large weightage of about 15 per cent to governance.

Emerging nations including India have asked the World Bank to make its World Goverance Index more objective, sources said.

The current level of tax-to-GDP ratio is at about 18 per cent, he said, adding, it used to be 16.5 per cent a decade ago.

"But we are at sweetest spot at current level of income. We aspire to be 20 per cent and that will take 5-6 years," he said.

On the expenditure side, Seth said a lot of rebalancing are happening in favour of capital expenditure while financing essential revenue expenditure.

Some of the state governments, including some of the high income states, are moving towards financing current expenditure, rather than investing in people, he said.

On the rating of papers issued by state governments, he said, there should be uniformity.

"Just like external rating agencies do rate India...Today in Indian market that debt paper of a state government is treated more or less the same irrespective of whether a state's GSDP ratio is 50 per cent or it is 20 per cent," he said.

There is not much of a difference in the yield, he said, adding, "we have to think of a way wherein there is a market signal and market discipline has be brought into that area."

Market does differentiate in terms of the yield between a paper which is rated AAA versus the paper which is rated A and BBB, he said.

So, he said, even starting that process of doing the rating of state development loans will be an important signal to happen.

In terms of global trade architechture, he said, there was a clear sense that a global rebalancing is needed.

Though, there were differing opinion about what should be the mechanism and what should be the pace of that rebalance, he said.

Also, multilateral institutions, including fund and the bank in particular and MDBs in general, have to become more focussed.

About energy transition, he said, its importance has come down rather countries across the globe are now focussing on energy security in the changed world order.

"It was more about energy security, which was being talked about (at the recent World Bank-IMF annual spring meeting). Of course, there are few economies, which were still very bullish about it, but the general sense was the energy security..." he said.