Is India's Central Debt Sustainable?

This paper revisits the proposition that India?s debt problem is unsustainable in light of the recently changed outlook for growth and interest rates. Using a decomposition model, it separates out the effects on the fiscal deficit of growth and government behaviour in the past. If recent government behaviour were to continue, the economy would need to grow at 6.1 per cent in the coming years for the centre?s debt to be sustainable, a growth rate that seems eminently achievable. If a real growth rate of 6.2 per cent is posited in the coming years, only a modest degree of fiscal adjustment would be required, or none at all, to reach a tolerable level of the debt to GDP ratio by 2009-10.