The overall debt liabilities of the government are on a declining trajectory with a low roll-over risk due to longer maturity profile of bonds, finance minister Arun Jaitley said releasing the latest Status Paper on public debt.
As a ratio to GDP, the Central government debt stood at 47.1% at end-March 2015, the same as at the end of FY14. It has stabilised after witnessing a consistent decline from 61.4% in 2001-02. General government (Centre and states) debt-GDP ratio worked out to 66.1% at end-March 2014, significantly lower than historical high at 83.3% in 2003-04 owing to fiscal consolidation process at the central and state level.
The government is primarily resorting to market linked borrowings for financing its fiscal deficit. Conventional indicators of debt sustainability, i.e. level and cost of debt, indicate that debt profile of government is comfortably placed in terms of sustainability parameters of public debt and consistently improving,” Jaitley wrote in the foreword of the Paper.
Responding to a public debate on the merits/demerits of Centre not adhering to the fiscal consolidation roadmap to create extra space for public investment, Reserve Bank of India governor Raghuram Rajan recently spoke against such an adventure at a time of global uncertainties. “Unfortunately, the growth multipliers on government spending at this juncture are likely to be much smaller, so more spending will probably hurt debt dynamics,” Rajan had said. He also cautioned that additional fiscal burden on states due to power sector debt restructuring in FY17 could increase the combined fiscal deficit of the Centre and states.
At end-March 2015, about 28.2% of outstanding stock had a residual maturity of up to 5 years, indicating a relatively lower roll-over risk in medium-term, which is further supported by the Centre’s active debt management in terms of switches and buy backs. The weighted average residual maturity of outstanding government securities at end-March 2015 was 10.23 years which is high compared to international standards.
Since 2010-11, the Centre has been bringing-out an Annual Status Paper on public debt to provide a detailed analysis of the overall debt position of the government.
According to the Paper, interest payments to revenue receipts ratio of the Centre has decreased to 36.5 % in 2014-15 from about 52 % in the beginning of 2000s. The Centre’s average interest cost (AIC) has declined to 6.7 % in 2014-15 from 8.1 % in 2000-01. The AIC is stable and well below nominal GDP growth rate, which indicates that India is comfortably placed in terms of sustainability parameters of public debt, it said.
It said 93.8% of total central government debt at end-March 2015 is denominated in rupee. As percentage of GDP, external debt constituted a low 2.9% at end-March 2015, implying low currency risk to central government debt portfolio and impact on balance of payments remains insignificant.
There has been a compositional shift towards marketable debt – share of marketable securities in total internal liabilities increased from 43% in 2000-01 to 78.5% at end-March 2015. The government is also moving toward alignment of administered interest rates with the market rates, such as interest rates on small savings.