This column examines India’s total nominal debt to nominal GDP ratio in the first quarter of 2022 from various segments from an international perspective. The debt analysis is not just confined to the general government sector debt as is often the case, but also includes households, and corporate sector debt as well.

Managing debt is emerging as an important policy issue in the fragile global social and economic environment, with slower growth and tightening of monetary and/or fiscal policies. IMF, in its World Economic Outlook for October 2022 has noted that- “Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook”.

Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent with slower growth, by 2024.

Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy... Risks to the outlook remain unusually large and to the downside¹.

IMF also reports that several G20 countries will tighten both monetary and fiscal policies, while several countries are expected to tighten monetary policy. These policy stances will have implications for interest rates at which debt could be rolled over, complicating debt management, and for inflation. High food and natural gas price inflation, though easing, is expected to have serious adverse impacts on low- and middle-income households in many countries. (See Figure 1)

https://www.imf.org/en/Blogs/Articles/2022/10/11/policymakers-need-steady-hand-as-storm-clouds-gather-over-global-economy -Accessed on 19 November 2022.

Figure 2 provides total nominal debt to nominal GDP ratios for India and select countries, divided into household, government, and corporate debt for the first quarter of 2022. It should be noted that debt is a stock concept while GDP is a flow concept. Variability in the quality of data among countries suggests a cautious nuanced interpretation of numbers in Figure 2. It should also be noted that debt, particularly government debt, is only one component of the balance sheet. Governments, for example, have various types of physical and monetary assets, as well as tax powers over income and expenditure flows. Thus, debt ratios should not be interpreted mechanically.

Figure 2: Total Debt to GDP Ratios of India and the Selected Countries, 2022, Quarter 1