Union Government Targets Debt-To-GDP Ratio Reduction To 50%

New Delhi, Aug 5 (KNN) The Union government plans to significantly reduce its debt-to-GDP ratio over the coming years, according to sources familiar with the matter.

The initiative aims to bring the ratio down to a more sustainable level of 50 per cent through a phased approach, reported Mint.

Starting from the fiscal year 2024-25, the government intends to decrease the debt-to-GDP ratio by one percentage point annually until it reaches 50 per cent. Subsequently, the plan envisions a more gradual reduction of 0.5 percentage points per year.

An official, speaking on condition of anonymity, stated, "We have conducted extensive simulations, and while ambitious, we believe this goal is achievable."

The source added that once the 50 per cent threshold is reached, the government will aim to balance debt reduction with economic growth considerations.

Recent data presented to the Lok Sabha by Minister of State for Finance Pankaj Chaudhary indicates that government debt is projected to reach Rs 185.27 trillion, or 56.8 per cent of GDP, in the 2024-25 fiscal year. This marks a substantial increase from Rs 93.26 trillion, or 49.3 per cent of GDP, in 2018-19.

The debt-to-GDP ratio has fluctuated in recent years, with a notable spike to 61.4 per cent in 2020-21 due to the economic impact of the COVID-19 pandemic.

The increase in debt has been attributed to higher infrastructure spending, social schemes, and pandemic-related economic relief measures.

Another government official emphasised the importance of creating fiscal space to respond to potential future crises, stating, "The goal is to bring the total debt to a more sustainable level."

As the government pursues this debt reduction strategy, it will need to carefully balance fiscal consolidation with maintaining economic growth.

The success of this plan could have significant implications for India's long-term economic stability and its ability to respond to future economic challenges.

(KNN Bureau)