Government s Debt Profile Getting Distorted

EPW Research Foundation Government's Debt Profile Getting Distorted Policy Distortions IN the first week of September, the Reserve Bank of India (RBI) released its Annual Report for 1996-97 which has set out certain noteworthy statements relating to the evolving nature of the money and financial markets. In doing so, however, the central banking authorities seem to have ignored the series of macro and micro level distortions that have crept in as a result of the somewhat forced pace of changes in fiscal deficit and the government's debt profile. First, the authorities have failed to notice that excessive fiscal compression has hurt the process of industrial growth, the results of which are also seen in an extremely poor bank credit offtake now for over 18 months and excess liquidity in the financial system. Even against the back ground of serious demand constraints faced by the Indian industry, the R BF reiterates the same 'mantra' of the need to reduce the centre's gross fiscal deficit further from 5 per cent of GDP in 1996 97 to 4.5 per cent in the current year. Second, despite a steady decline in the central government's debt to GDP ratio, the RBI's annual report talks of a growing size of debt. The centre's internal debt to GDP ratio has fallen from 303 per 98 (RE),total internal liabilities to GDP ratio