Managing debt effectively is crucial for developing economies, especially in the post-pandemic landscape with rising global interest rates and economic uncertainties. Here’s an exploration of some international best practices relevant to India in 2024:
1. Fiscal Consolidation:
- Benchmark: The IMF recommends a gradual but sustained approach to reducing fiscal deficits in developing economies. Aiming for a primary surplus (government revenue exceeding expenditure excluding interest payments) can help stabilize debt levels.
- India’s Position: The 2024 Interim Budget targets a fiscal deficit of 6.4% of GDP, reflecting a positive step towards consolidation. However, continued efforts are needed to achieve the stated goal of bringing the deficit below 4.5% by 2025-26.
2. Prioritizing Productive Expenditure:
- Benchmark: Allocate borrowed funds towards high-multiplier infrastructure, education, and healthcare investments that stimulate economic growth and improve social outcomes.
- India’s Position: While the 2024 budget allocates 2.9% of GDP to capital expenditure, ensuring efficient utilization and directing funds towards productive sectors remains crucial.
3. Debt Maturity Management:
- Benchmark: Extend debt maturity by issuing long-term bonds, reducing refinancing risks and lowering immediate repayment pressure.
- India’s Position: The 2024 budget proposes a marginal increase in long-term debt issuance, but a more substantial shift could be beneficial, especially considering rising interest rates.
4. Diversifying Debt Sources:
- Benchmark: Utilize a mix of domestic and external debt, mitigating risks associated with reliance on a single source. Consider issuing green bonds or catastrophe bonds for specific projects.
- India’s Position: Maintaining low external debt remains crucial, but exploring international funding sources like green bonds or multilateral loans for specific infrastructure projects could be beneficial.
5. Transparent Debt Management:
- Benchmark: Publish comprehensive debt data and management strategies regularly, fostering public trust and investor confidence.
- India’s Position: India has improved in publishing debt data, but further transparency in spending patterns and specific debt utilization would be beneficial.
6. Institutional Capacity Building:
- Benchmark: Invest in strengthening the debt management office’s expertise and capacity to implement complex strategies effectively.
- India’s Position: While India has made progress, continued efforts towards capacity building within the debt management office are crucial.
Additional Considerations:
- Country-specific context: Adapting best practices to India’s unique economic, political, and social landscape is essential.
- Balancing growth and debt sustainability: Striking a balance between achieving economic growth and maintaining fiscal prudence is a key challenge.
- Data and research: Continuously monitoring international debt management trends and learning from successful examples can inform policy decisions.
By adopting and adapting these best practices, India can navigate its debt management challenges effectively and ensure long-term fiscal sustainability for a brighter economic future.
