Government Debt Report
In pursuance of the announcement made in the Budget for 2010-11 to this effect, a status paper on Government debt was presented in November 2010. The paper made a detailed analysis of the situation and chalked out a roadmap for reduction in overall debt as a percentage of the GDP for the General Government during the period 2010-11 to 2014-15. The salient features of the report are detailed as follows:
The objectives of the debt management policy are to meet Central Governmentï¿½s financing need at the lowest possible long-term borrowing costs and also to keep the total debt within sustainable limits. Additionally, it aims at supporting development of a well-functioning and vibrant domestic bond market. The three important attributes of Government debt include source of financing, fixed interest nature of debt, and long residual maturity. Of the overall Central Government debt, about 92 per cent is internal debt and 8 per cent is external debt. Internal debt largely consists of market loans in the form of dated securities which are contracted through auction. Most of the dated securities (97 per cent) are fled coupon and only the balance 3 per cent are rating rate bonds. e weighted average maturity of these dated securities is about 10 years while the weighted average interest rate is about 7.8 per cent per annum.
Subsequent to the Report of the FC which had estimated debt to GDP ratios and a roadmap for its reduction, the CSO revised the nominal GDP significantly and as per the revised data the reduction in the levels of debt as proportion of the GDP could be made even with higher than recommended fiscal deficits. As such, a higher than the recommended target was preferred whereby the fiscal deficit of the Centre would be reduced to 3 per cent of the GDP by 2014-15 and accordingly debt as a proportion of the GDP would come down from 50.5 per cent in 2009-10 to 43 per cent in 2014-15.
The outstanding debt of State Governments is estimated at 26.3 per cent of the GDP for 2009-10. However, after netting of the liabilities on account of investments made in 14-days treasury bills of Central Government, this comes down to 24.8 per cent of the GDP. e roadmap for States has been prepared with fiscal deficit as a percentage of the GDP at the level recommended by the With the foregoing assumption on fiscal deficit, consolidated debt for State Governments is estimated to reduce from 24.8 per cent of the GDP in 2009-10 to 23.1 per cent in 2014-15.
After factoring in the impact of Central loans to States, the consolidated debt of General Government has come down from 79.3 per cent in 2004-05 to 68.7 per cent in 2007-08. However, it has subsequently increased during the global economic crisis period to 71.1 per cent in 2008-09 and further to 73 per cent of the GDP in 2009.
Written by princy