New Delhi: The Union government has unveiled an ambitious plan to address its debt-to-GDP ratio, targeting a reduction of 1 percentage point per year until it reaches a more sustainable level of 50%. This plan, starting from the fiscal year 2024-25, aims to enhance the nation’s economic stability by systematically decreasing the ratio, which is a crucial indicator of a country’s ability to manage and repay its debt.
The debt-to-GDP ratio measures the proportion of a country’s debt relative to its economic output. A high ratio suggests a higher burden of debt compared to the country’s economic performance, which can constrain economic growth and fiscal flexibility. By targeting a reduction of 1 percentage point annually, the government is taking a proactive approach to mitigate these risks and ensure that the debt remains manageable in relation to the country’s economic output.
According to insiders, the central government has conducted extensive simulations and assessments to validate the feasibility of this target. “Reducing the debt-to-GDP ratio is a long-term objective of the central government. We have done a lot of simulations on this. We will be able to reduce the debt-to-GDP every year by about 1 percentage point till we reach the 50% mark. Though this is ambitious, it is doable,” said a source familiar with the plan, who requested anonymity.
The initiative reflects the government’s commitment to maintaining fiscal discipline while promoting economic growth. Once the ratio hits the 50% mark, the focus will shift to a more gradual reduction of 0.5 percentage points annually. This adjusted target aims to strike a balance between debt reduction and sustaining economic growth, ensuring that fiscal measures do not overly constrain economic development or public investment.
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In practical terms, the government’s debt is projected to increase significantly over the coming fiscal year. According to the budget estimates, the total government debt is expected to rise to ₹185.27 trillion, or 56.8% of GDP, during the financial year 2024-25. This marks a substantial increase from ₹93.26 trillion, or 49.3% of GDP, recorded in 2018-19. The rise in debt highlights the growing challenge of managing fiscal responsibilities while addressing economic needs and public demands.
Minister of State for Finance Pankaj Chaudhary provided these figures in a recent Lok Sabha session, underscoring the importance of the government’s commitment to reducing the debt-to-GDP ratio. “Government debt will escalate to ₹185.27 trillion, or 56.8% of GDP, during the financial year 2024-25,” Chaudhary stated. “This increase from ₹93.26 trillion in 2018-19 underscores the need for a structured approach to managing our debt levels.”
The proposed strategy is part of a broader effort to ensure that fiscal policy remains aligned with long-term economic stability and growth objectives. By setting clear targets for debt reduction, the government aims to enhance investor confidence and create a more predictable economic environment. This approach also reflects a recognition of the need for prudent fiscal management in the face of evolving economic challenges.
In summary, the Union government’s plan to reduce the debt-to-GDP ratio by 1 percentage point annually until it reaches 50% represents a significant step towards improving fiscal health. With a focus on balancing debt reduction with economic growth, the strategy aims to provide a sustainable path forward for managing the nation’s debt and supporting overall economic stability.
