Two recent observations by the International Monetary Fund (IMF) sparked reactions from the Indian Government. First, the IMF has raised concerns about the long-term sustainability of India’s debts. Second, it reclassified India’s exchange rate regime, terming it a “stabilised arrangement” instead of “floating”. These emerged from the annual Article IV consultation report, which is part of the Fund’s surveillance function under the Articles of Agreement with member countries. The report also acknowledged India’s effective inflation management and projected a balanced outlook for India’s economic growth. While the remark on the exchange rate can be viewed as comments on ‘excessive management’, as the rupee moved in a narrow band due to Central Bank interventions, the concerns on debt sustainability can be construed as a call for more prudent management of debt in the medium term.
The IMF, in the report, states that India’s general government debt, including the Centre and States, could be 100% of GDP under adverse circumstances by fiscal 2028. According to them, “Long-term risks are high because considerable investment is required to reach India’s climate change mitigation targets and improve resilience to climate stresses and natural disasters. This suggests that new and preferably concessional sources of financing are needed, as well as greater private sector investment and carbon pricing or equivalent mechanism.” The Finance Ministry refutes IMF projections as this is “a worst-case scenario and is not fait accompli”.
