The IMF (International Monetary Fund) has expressed their concern about India’s debts and its long-term sustainability but as per the report the Government disagrees with this concern. According to the Business Standard report, the IMF has cautioned the Indian Government that India’s dept will exceed 100 percentage of its GDP in near future.
Another concern by the IMF is regarding India’s investment towards sustainable climate change, which needs to be significantly increased to meet the climate change targets.
IMF’s annual Article VI consultation report said, “Long-term risks are high because considerable investment is required to reach India’s climate change mitigation targets and improve resilience to climate stresses and natural disasters. This suggests that new and preferably concessional sources of financing are needed, as well as greater private sector investment and carbon pricing or equivalent mechanism.”
To these concerns by IMF, the Indian Government have totally disagreed stating that the risk with sovereign debts is mot that major as its mainly domestic currency. India’s executive director, KV Subramanian at IMF has disagreed with IMF’s concern and cited India’s historical experience and emphasized the limited increase in India’s public debt to GDP ratio.
“The same can be said of the staff prognosis that debt sustainability risks are high in the long term. The risks from sovereign debt are very limited as it is predominantly denominated in domestic currency. Despite the multitude of shocks, the global economy has faced in the past two decades, India’s public debt-to-GDP ratio at the general government level has barely increased from 81 percent in 2005-06 to 84 percent in 2021-22, and back to 81 percent in 2022-23,” said Subramanian.
IMF also reclassified the exchange rate of India terming it “stabilized arrangement” in place of “floating.” Indian Government disagrees with this calling it “subjective selection” and “unjustified” in regard to the reclassification of exchange rate by IMF.
The RBI (Reserve Bank of India) also disagreed with India in regard to IMF’s concern over India’s foreign exchange intervention that said to be impacting exchanging rate of rupee-USD. Subramanian also argued that exchange rate flexibility is important to absorb external shocks against the IMF’s characterization. An official government said, “The IMF doesn’t understand India’s domestic compulsions. Since imported inflation is a crucial element of India’s overall inflation that impacts 1.4 billion people, the central bank has to actively manage the rupee volatility.”