NEW DELHI: The 15th Finance Commission headed by N.K. Singh will recommend different debt glide paths for each state to reduce overall debt-to-GDP ratio of states to 20% by 2024-25 instead of a similar glide path for each state.

“Some states on account of legacy debts, have debts quite higher and clearly misaligned from the broad trajectory. States like West Bengal and Rajasthan have debt-to-GDP ratios which are in the range of upper 30 or even in 40s. To bring them down to around 20% is going to be not only a challenge but impossible because you will require fiscal suppression which may not be at all possible. So currently, my Commission is engaged in finalising disaggregated, doable debt path for each state depending on its special circumstances," Singh said on Friday at an event organised by industry lobby group Assocham.

The recommendations of the 15th Finance Commission will be implemented in the period 1 April 2020 to 31 March 2025. The Commission is likely to submit its report by end 2019.

The N.K. Singh committee on fiscal discipline had favoured a combined debt-to-GDP ratio of 60% by 2022-23—40% for the central government and 20% for state governments. However, the central government extended the deadline by two years to 2024-25 in budget 2018-19.

“I see no great difficulty for the central government to bring down its debt-to-GDP ratio of 40% by 2024-25," Singh said.

A report by Care Ratings released in September last year showed in 2018-19, Jammu and Kashmir and Punjab have the highest debt-to-GDP ratio at 45.9% and 41.5%, respectively, while Chhattisgarh and Maharashtra have the lowest at 17.4% and 17.5%, respectively.

Presenting the interim budget on 1 February, interim finance minister Piyush Goyal said the government will focus on debt consolidation along with completion of the fiscal deficit consolidation programme.

The budget targets to reduce debt-to-GDP ratio from 48.9% in 2018-19 to 47.3 in 2019-20 and 43.4% by 2021-22. The International Monetary Fund (IMF) last year said that India’s combined gross debt, including that of the central and state governments, is set to decline by almost nine percentage points to 61.4% of gross domestic product (GDP) by 2023-24. To be sure, the calculations of gross debt by IMF and the central government differ, particularly regarding accounting of divestment and licence auction proceeds and some public sector lending.


Close