Covid effect! Debt to GDP ratio to rise in this fiscal, says Finance Commission chairman

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Published: May 22, 2020 2:10:41 AM

Additional expenditures to tackle Covid-19 pandemic and reduction in economic activity will push up the general government debt to GDP ratio in FY21.

"The cumulative actual fiscal impact is only around Rs 1.14 lakh crores or 0.6 per cent of GDP," the report said. The Centre’s debt-to-GDP was estimated to be around 49% of GDP in FY20, up from 48.7% in FY19.

Additional expenditures to tackle Covid-19 pandemic and reduction in economic activity will push up the general government debt to GDP ratio in FY21, 15th Finance Commission (FC) chairman NK Singh said on Thursday after the first meeting of the FC’s committee on fiscal consolidation road-map of the general government.

“Considering the uncertainty about emerging outlook, the magnitude of such impact is too early to be assessed now and will need to be carefully monitored over the coming months,” said Singh, who also heads the committee.
In 2017, the NK Singh-led panel on fiscal responsibility (set up by the finance ministry) had suggested overall public debt-to-GDP ratio of 60% by 2022-23—40% for the central government and 20% for states.

The outstanding debt of the states has risen over the last five years to 25% of the GDP in FY20, posing medium-term challenges to its sustainability. The Centre’s debt-to-GDP was estimated to be around 49% of GDP in FY20, up from 48.7% in FY19.

On Thursday, the FC’s committee also discussed about the structural issues in the fiscal situation of the general government prior to the outbreak of the pandemic, need to take a re-look at the definition of debt and deficits in order to ensure consistency between stocks and flows, and, possibilities for the state governments to avail of the full additional borrowing space of 2% of GSDP permitted to them by meeting the conditions therein.

Separately, the health-related committee of the Commission on Thursday discussed the possibility of modeling Indian healthcare services on the line of UK’s National Health Service (NHS) for better coordination between the Centre and states.

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