New Delhi: India's public debt position is comfortable on account of declining trajectory of central government liabilities and stable interest cost, Finance Minister Arun Jaitley said Wednesday.
"The Average Interest Cost, which is stable and well below nominal GDP growth rate, indicates that India is comfortably placed in terms of sustainability parameters of public debt," he said.
He further said the overall liabilities of the Centre are on a medium-term declining trajectory with low roll-over risk, notwithstanding the slight increase in a couple of years in the recent past due to stimulus spending in the wake of the global financial crisis.
"The share of public account liabilities in the total liabilities of the General Government (the Centre and the States) and are also on a declining trend," Jaitley said in foreword to status paper on government debt released today.
Centre's Average Interest Cost (AIC) declined to 6.7 percent in 2013-14 from 8.1 percent in 2000-01, while that of states' declined to 7.5 percent from 9.2 percent over the same period. A continuously declining AIC augurs well for the stability of government debt.
The government's debt portfolio, Jaitley added is characterised by "prudent risk profile" with share of short term debt "within safe limits".
Most of the debt is of domestic origin insulating the debt portfolio from currency risk.
The limited external debt is almost entirely from official sources on concessional terms, providing safety from volatility in the international financial markets, the paper said.
The relatively long maturity of debt and its predominantly fixed-coupon character point to low roll-over and interest rate risks.
India?s debt level went up consistently during 1980s and 1990s and the combined debt-GDP ratio of the Centre and States reached a peak of 83.3 percent by the end of 2003-04. Thereafter, debt-GDP ratio has shown a secular decline.
The marginal increase during 2008-09 and 2009-10 was mainly on account of global factors. General government debt/ GDP ratio stood at 65.2 percent at end-March 2013 compared to 65.3 percent at end-March 2012.
"The debt-GDP ratio is likely to continue to trend downward in the years ahead," the paper said.
The Medium Term Fiscal Policy (MTFP) Statement estimates the ratio of central government liabilities to GDP at 46 percent at the end of March 2014, and 45.4 percent at the end of March 2015.
The ratio is projected to decline to 43.6 percent of GDP by end of March 2016 and 41.5 percent by end of March 2017.
The paper further said government debt portfolio is characterised by favourable sustainability indicators and right profile.
"Share of short-term debt is within safe limits, although it has risen in recent years. Most of the debt is at fixed interest rates which minimises volatility on the budget," it said.
Debt is mostly of domestic origin implying that currency risk to the debt portfolio is insignificant, as is the likely impact of volatile international capital markets, it said.
Talking about the government accessing international capital markets, the paper said it should be justified in the context of overall savings and investment requirements of economy.
"If a government decides to issue sovereign bonds, it would require establishing a regular and predictable schedule of issuance leading to a build up of interest and redemption payments," the report said.