What India’s bond market fears
The debt-growth dynamics raises red flags on debt sustainability and puts pressure on the bond market, while making clear that fiscal stress is here to stay
Mumbai: The National Statistical Office (NSO) has pegged nominal growth rate at 7.5% for the fiscal year ending March 2020, the worst on record since 1975. A simple extrapolation of the budgeted fiscal deficit of ₹7 trillion on the now lower GDP number of ₹204 trillion, worsens the fiscal deficit ratio to 3.5% of GDP. The actual figures, to be announced in the upcoming budget, may be higher, but the fiscal arithmetic already overshoots targets set by the Fiscal Responsibility and Budget Management (FRBM) Act. While this fiscal slippage in times of slowing growth does not come as a surprise, early warning signals for debt sustainability and repayment have started to show up, causing concern in India's bond markets.