Govt must rein in rising public debt

Updated: May 25, 2012, 00:24 AM IST

New Delhi: The government should rein in the rising public debt, especially from external sources, as it may worsen the debt situation amidst increasing volatility in the rupee, industry body Assocham said on Thursday.

"India must be cautious and should learn from the experiences of some of the European Union countries as well as other developed nations to realise that it is of extreme importance to keep debt burden under check especially the one being exerted from external sources," it said in a report titled 'Rising Interest Burden'.

Though there is need for fund flows, caution must be exercised while depending on overseas debt, it said.

The ratio of public debt to GDP in Greece is 140 percent. There is some consolation in the fact India's public debt largely comes from internal resources and the dependence on the foreign capital has not gone up significantly, the report added.

According to the report, the per capita public debt is higher than the growth in per capita income, implying that the population borrowings are increasing at a much faster pace than their earnings.

"...The per capita income increased from Rs 26,015 in 2005-06 to Rs 38,005 in 2011-12. The per capita debt increased from Rs 13,276.87 in 2005-06 to Rs 27,044.22 in 2011-12," it said.

The government must curtail fiscal deficit and should be 'very cautious' in opening up market and allowing foreigners to invest in government securities.

At a time when the currency volatility is peaking every other day, "India must be very cautious in opening up its market and allowing foreign investors to invest in government securities," said Assocham President Rajkumar Dhoot, while releasing the report.

The government's non-plan expenditure is rising fast and the interest payments are mounting heavy pressure on finances of the government.

The interest payment's share to the total non-plan expenditure would be 33 percent in 2012-13, whereas in 2008-09 it stood at 31.6 percent, according to the report.

It is estimated to be 35.9 percent in 2011-12.

Interest payment have been close to one-third of total revenue off late, the continued dependence on debt to finance expenditure might even lead to a situation of debt trap, it cautioned, adding a large portion of total revenue is also being used to pay the interest.

At present, raising funds from overseas market poses several risk, including extra burden on redemption as the rupee's value has depreciated, Assocham added.