Abstract
India’s economy has slowed substantially before and after the global financial crisis. The economy is in a weaker position than before the crisis. With investment particularly hard-hit, potential GDP is likely to be lower than estimated. Inflation is constraining the room for monetary policy easing. Banks’ capital ratios have fallen slightly, but asset quality is deteriorating considerably. The current account deficit registered a record high in 2011–12. Delivering on structural reforms, fiscal consolidation, and low inflation are critical for a sustained recovery.
Annex I. Medium-Term Public Debt Sustainability Analysis
Macroeconomic Assumptions. Growth is forecast at 5.4 percent in 2012/13, and should slowly return to trend in the medium term. The WPI is expected to fall from 7¾ percent at end-2012/13 to around 5 percent in the medium term. This baseline scenario assumes continued implementation of structural reforms that do not require legislative approval, and a relatively benign global scenario.
Fiscal Assumptions. The 2012/13 central government budget deficit is expected to reach 5.8 percent of GDP. This corresponds to 5.6 percent under the authorities’ definition. Over the medium term, this is expected to decline slowly toward 5¼ percent of GDP, while state government deficits should remain contained at or slightly below 3 percent of GDP.
Tax performance, especially for corporate income taxes, is expected to increase slightly as ongoing administrative measures continue to be implemented. Base broadening is expected to continue, but with exemptions from the services tax already quite limited, gains are expected to be slight. GST is not assumed in this baseline as it requires legislative changes, including a constitutional amendment.
At the same time, some savings are likely to be found from fertilizer and petroleum subsidies, and the planned gradual introduction of cash transfers should help rationalize spending over the medium term.
Other expenditures are expected to remain contained in the medium term, with current expenditure rising modestly at the central government level and capital expenditure remaining close to current levels.
Debt is expected to rise over the medium term by around 2 percentage points as public banks are recapitalized to reach Basel III targets and as some of the debts of electricity distribution companies are assumed by the government, in line with recent announcements.
A. Sensitivity Analysis
Baseline. India’s still relatively high nominal GDP growth means that its debt-stabilizing primary balance is -4.7 percent of GDP. With the primary balance currently close to this level and expected to improve in the medium term, the debt-to-GDP ratio is forecast to decline modestly, at around 1–1½ percentage points a year. After falling by just over 8 percentage points of GDP from its crisis peak of 75.4 percent to a provisional 67.3 percent in 2011/12, due to high nominal GDP growth, the debt to GDP ratio is forecast to fall by 7.2 percentage points by 2017/18, reaching 60 percent.
Other Scenarios. A one-half standard deviation shock to GDP growth, which effectively would be a continuation of the current slowdown, would end consolidation, and keep the debt ratio broadly constant. With the primary deficit now slightly below debt stabilizing levels, a scenario of unchanged policies would result in a marginal decline in debt over the medium term, while a half-standard deviation shock to interest rates would not fundamentally alter the level or dynamics of debt. Further contingent liabilities could arise from losses at public banks or other state-owned companies, but even a large shock would have mostly a level effect on debt, and under conditions similar to the baseline, the debt ratio would continue to decline.
Policy Risks. On the upside, better tax buoyancy, a GST and a new Direct Tax Code that improve efficiency and lead to near-term revenue gains, or a strong revival of the economy could return India to the favorable debt dynamics prevailing before the crisis. On the downside, should diesel prices again fall below global levels, savings not materialize from fertilizer and other fuel subsidy reforms, or tax takes not return to pre-crisis levels, then debt dynamics would either stabilize at current levels or possibly worsen.
India: Public Debt Sustainability: Bound Tests 1/
(Public debt, in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Source: Fund staff estimates; fiscal year data.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2009, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).India: Public Debt Sustainability: Bound Tests 1/
(Public debt, in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Source: Fund staff estimates; fiscal year data.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2009, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).India: Public Debt Sustainability: Bound Tests 1/
(Public debt, in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Source: Fund staff estimates; fiscal year data.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2009, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).India: Public Sector Debt Sustainability Framework, 2007/08-2017/18
(In percent of GDP, unless otherwise indicated)
General government (Center and States); debt refers to gross debt.
Derived as [(r - π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
India: Public Sector Debt Sustainability Framework, 2007/08-2017/18
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007/08 | 2008/09 | 2009/10 | 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | 2016/17 | 2017/18 | Debt-stabilizing primary balance 9/ | ||||
| Baseline: Public sector debt 1/ | 74.0 | 74.5 | 72.8 | 68.1 | 67.3 | 66.8 | 66.0 | 64.9 | 63.1 | 61.3 | 59.6 | -4.7 | |||
| o/w foreign-currency denominated | 4.3 | 4.7 | 3.9 | 3.6 | 3.6 | 3.2 | 2.9 | 2.6 | 2.3 | 2.0 | 1.8 | ||||
| Change in public sector debt | −3.1 | 0.5 | −1.8 | −4.7 | −0.8 | −0.5 | −0.9 | −1.1 | −1.7 | −1.8 | −1.7 | ||||
| Identified debt-creating flows (4+7+12) | −6.6 | 2.6 | −0.6 | −3.8 | 0.1 | 0.2 | −1.1 | −1.3 | −1.3 | −1.4 | −1.4 | ||||
| Primary deficit | −0.8 | 4.9 | 4.9 | 4.9 | 4.5 | 4.2 | 3.6 | 3.7 | 3.6 | 3.4 | 3.5 | ||||
| Revenue and grants | 22.0 | 19.7 | 18.6 | 19.1 | 18.6 | 18.4 | 18.7 | 18.8 | 18.9 | 18.9 | 19.0 | ||||
| Primary (noninterest) expenditure | 21.2 | 24.6 | 23.4 | 24.1 | 23.1 | 22.7 | 22.4 | 22.5 | 22.4 | 22.4 | 22.5 | ||||
| Automatic debt dynamics 2/ | −5.9 | −2.3 | −5.1 | −7.0 | −4.2 | −3.8 | −4.3 | −4.6 | −4.6 | −4.6 | −4.6 | ||||
| Contribution from interest rate/growth differential 3/ | −5.5 | −3.4 | −4.6 | −7.0 | −4.6 | −3.8 | −4.3 | −4.6 | −4.6 | −4.6 | −4.6 | ||||
| Of which contribution from real interest rate | 1.0 | −0.9 | 0.7 | −1.1 | −0.6 | −1.1 | −0.9 | −0.9 | −0.8 | −0.9 | −1.0 | ||||
| Of which contribution from real GDP growth | −6.5 | −2.6 | −5.4 | −5.8 | −4.0 | −2.7 | −3.5 | −3.7 | −3.8 | −3.7 | −3.7 | ||||
| Contribution from exchange rate depreciation 4/ | −0.4 | 1.1 | −0.5 | 0.0 | 0.4 | … | … | … | … | … | … | ||||
| Other identified debt-creating flows | 0.1 | 0.0 | −0.4 | −1.7 | −0.2 | −0.3 | −0.4 | −0.4 | −0.2 | −0.2 | −0.2 | ||||
| Privatization receipts (negative) | −0.1 | 0.0 | −0.4 | −1.7 | −0.2 | −0.3 | −0.4 | −0.4 | −0.2 | −0.2 | −0.2 | ||||
| Recognition of implicit or contingent liabilities | 0.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Other (specify, e.g. bank recapitalization) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Residual, including asset changes (2-3) 5/ | 3.5 | −2.1 | −1.1 | −0.9 | −0.9 | −0.6 | 0.3 | 0.2 | −0.4 | −0.4 | −0.3 | ||||
| Public sector debt-to-revenue ratio 1/ | 337.1 | 378.2 | 391.7 | 355.6 | 361.9 | 362.4 | 352.4 | 345.4 | 334.8 | 323.9 | 313.5 | ||||
| Gross financing need 6/ | 8.4 | 14.0 | 14.3 | 14.0 | 12.5 | 12.1 | 12.4 | 12.6 | 11.9 | 11.6 | 11.4 | ||||
| in billions of U.S. dollars | 104.2 | 171.2 | 194.6 | 235.9 | 231.1 | 240.8 | 269.3 | 302.9 | 315.4 | 346.2 | 384.6 | ||||
| Scenario with key variables at their historical averages 7/ | 66.8 | 66.1 | 65.4 | 64.3 | 63.3 | 62.4 | -3.7 | ||||||||
| Scenario with no policy change (constant primary balance) in 2012/13-2017/18 | 66.8 | 66.6 | 66.0 | 64.9 | 63.7 | 62.6 | -4.9 | ||||||||
| Key Macroeconomic and Fiscal Assumptions Underlying Baseline | |||||||||||||||
| Real GDP growth (in percent) | 9.8 | 3.9 | 8.2 | 9.6 | 6.9 | 4.5 | 6.0 | 6.5 | 6.8 | 6.9 | 7.0 | ||||
| Average nominal interest rate on public debt (in percent) 8/ | 7.8 | 7.7 | 7.6 | 7.5 | 7.5 | 7.6 | 8.5 | 8.3 | 8.1 | 7.9 | 7.7 | ||||
| Average real interest rate (nominal rate minus change in GDP deflator, in percent) | 2.1 | −1.0 | 1.6 | −1.0 | −0.5 | −1.5 | −0.9 | −1.0 | −0.8 | −1.0 | −1.2 | ||||
| Nominal appreciation (increase in US dollar value of local currency, in percent) | 9.1 | −21.3 | 12.6 | 1.1 | −10.6 | … | … | … | … | … | … | ||||
| Inflation rate (GDP deflator, in percent) | 5.8 | 8.7 | 6.0 | 8.5 | 8.0 | 9.1 | 9.4 | 9.3 | 9.0 | 9.0 | 9.0 | ||||
| Growth of real primary spending (deflated by GDP deflator, in percent) | 10.1 | 20.8 | 3.0 | 12.5 | 2.6 | 2.5 | 4.6 | 7.0 | 6.6 | 6.8 | 7.6 | ||||
| Primary deficit | −0.8 | 4.9 | 4.9 | 4.9 | 4.5 | 4.2 | 3.6 | 3.7 | 3.6 | 3.4 | 3.5 | ||||
General government (Center and States); debt refers to gross debt.
Derived as [(r - π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
India: Public Sector Debt Sustainability Framework, 2007/08-2017/18
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007/08 | 2008/09 | 2009/10 | 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | 2016/17 | 2017/18 | Debt-stabilizing primary balance 9/ | ||||
| Baseline: Public sector debt 1/ | 74.0 | 74.5 | 72.8 | 68.1 | 67.3 | 66.8 | 66.0 | 64.9 | 63.1 | 61.3 | 59.6 | -4.7 | |||
| o/w foreign-currency denominated | 4.3 | 4.7 | 3.9 | 3.6 | 3.6 | 3.2 | 2.9 | 2.6 | 2.3 | 2.0 | 1.8 | ||||
| Change in public sector debt | −3.1 | 0.5 | −1.8 | −4.7 | −0.8 | −0.5 | −0.9 | −1.1 | −1.7 | −1.8 | −1.7 | ||||
| Identified debt-creating flows (4+7+12) | −6.6 | 2.6 | −0.6 | −3.8 | 0.1 | 0.2 | −1.1 | −1.3 | −1.3 | −1.4 | −1.4 | ||||
| Primary deficit | −0.8 | 4.9 | 4.9 | 4.9 | 4.5 | 4.2 | 3.6 | 3.7 | 3.6 | 3.4 | 3.5 | ||||
| Revenue and grants | 22.0 | 19.7 | 18.6 | 19.1 | 18.6 | 18.4 | 18.7 | 18.8 | 18.9 | 18.9 | 19.0 | ||||
| Primary (noninterest) expenditure | 21.2 | 24.6 | 23.4 | 24.1 | 23.1 | 22.7 | 22.4 | 22.5 | 22.4 | 22.4 | 22.5 | ||||
| Automatic debt dynamics 2/ | −5.9 | −2.3 | −5.1 | −7.0 | −4.2 | −3.8 | −4.3 | −4.6 | −4.6 | −4.6 | −4.6 | ||||
| Contribution from interest rate/growth differential 3/ | −5.5 | −3.4 | −4.6 | −7.0 | −4.6 | −3.8 | −4.3 | −4.6 | −4.6 | −4.6 | −4.6 | ||||
| Of which contribution from real interest rate | 1.0 | −0.9 | 0.7 | −1.1 | −0.6 | −1.1 | −0.9 | −0.9 | −0.8 | −0.9 | −1.0 | ||||
| Of which contribution from real GDP growth | −6.5 | −2.6 | −5.4 | −5.8 | −4.0 | −2.7 | −3.5 | −3.7 | −3.8 | −3.7 | −3.7 | ||||
| Contribution from exchange rate depreciation 4/ | −0.4 | 1.1 | −0.5 | 0.0 | 0.4 | … | … | … | … | … | … | ||||
| Other identified debt-creating flows | 0.1 | 0.0 | −0.4 | −1.7 | −0.2 | −0.3 | −0.4 | −0.4 | −0.2 | −0.2 | −0.2 | ||||
| Privatization receipts (negative) | −0.1 | 0.0 | −0.4 | −1.7 | −0.2 | −0.3 | −0.4 | −0.4 | −0.2 | −0.2 | −0.2 | ||||
| Recognition of implicit or contingent liabilities | 0.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Other (specify, e.g. bank recapitalization) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Residual, including asset changes (2-3) 5/ | 3.5 | −2.1 | −1.1 | −0.9 | −0.9 | −0.6 | 0.3 | 0.2 | −0.4 | −0.4 | −0.3 | ||||
| Public sector debt-to-revenue ratio 1/ | 337.1 | 378.2 | 391.7 | 355.6 | 361.9 | 362.4 | 352.4 | 345.4 | 334.8 | 323.9 | 313.5 | ||||
| Gross financing need 6/ | 8.4 | 14.0 | 14.3 | 14.0 | 12.5 | 12.1 | 12.4 | 12.6 | 11.9 | 11.6 | 11.4 | ||||
| in billions of U.S. dollars | 104.2 | 171.2 | 194.6 | 235.9 | 231.1 | 240.8 | 269.3 | 302.9 | 315.4 | 346.2 | 384.6 | ||||
| Scenario with key variables at their historical averages 7/ | 66.8 | 66.1 | 65.4 | 64.3 | 63.3 | 62.4 | -3.7 | ||||||||
| Scenario with no policy change (constant primary balance) in 2012/13-2017/18 | 66.8 | 66.6 | 66.0 | 64.9 | 63.7 | 62.6 | -4.9 | ||||||||
| Key Macroeconomic and Fiscal Assumptions Underlying Baseline | |||||||||||||||
| Real GDP growth (in percent) | 9.8 | 3.9 | 8.2 | 9.6 | 6.9 | 4.5 | 6.0 | 6.5 | 6.8 | 6.9 | 7.0 | ||||
| Average nominal interest rate on public debt (in percent) 8/ | 7.8 | 7.7 | 7.6 | 7.5 | 7.5 | 7.6 | 8.5 | 8.3 | 8.1 | 7.9 | 7.7 | ||||
| Average real interest rate (nominal rate minus change in GDP deflator, in percent) | 2.1 | −1.0 | 1.6 | −1.0 | −0.5 | −1.5 | −0.9 | −1.0 | −0.8 | −1.0 | −1.2 | ||||
| Nominal appreciation (increase in US dollar value of local currency, in percent) | 9.1 | −21.3 | 12.6 | 1.1 | −10.6 | … | … | … | … | … | … | ||||
| Inflation rate (GDP deflator, in percent) | 5.8 | 8.7 | 6.0 | 8.5 | 8.0 | 9.1 | 9.4 | 9.3 | 9.0 | 9.0 | 9.0 | ||||
| Growth of real primary spending (deflated by GDP deflator, in percent) | 10.1 | 20.8 | 3.0 | 12.5 | 2.6 | 2.5 | 4.6 | 7.0 | 6.6 | 6.8 | 7.6 | ||||
| Primary deficit | −0.8 | 4.9 | 4.9 | 4.9 | 4.5 | 4.2 | 3.6 | 3.7 | 3.6 | 3.4 | 3.5 | ||||
General government (Center and States); debt refers to gross debt.
Derived as [(r - π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Annex II. Medium-Term External Debt Sustainability Analysis
India: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2013/14.India: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2013/14.India: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2013, 037; 10.5089/9781475594225.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2013/14.India: External Debt Sustainability Framework, 2007-2017
(In percent of GDP, unless otherwise indicated)
Derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε = nominal appreciation (increase in dollar value of domestic currency), and α = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
India: External Debt Sustainability Framework, 2007-2017
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Debt-stabilizing non-interest current account 6/ | ||||
| Baseline: External debt | 18.1 | 18.4 | 19.2 | 18.2 | 18.7 | 20.2 | 21.5 | 22.5 | 23.2 | 23.7 | 24.2 | -3.6 | |||
| Change in external debt | 0.0 | 0.2 | 0.8 | −1.0 | 0.5 | 1.5 | 1.3 | 1.0 | 0.7 | 0.5 | 0.5 | ||||
| Identified external debt-creating flows (4+8+9) | −6.2 | 1.5 | −2.8 | −3.2 | 0.4 | 1.1 | 0.4 | −0.1 | −0.5 | −0.8 | −0.8 | ||||
| Current account deficit, excluding interest payments | 0.6 | 1.6 | 2.3 | 2.3 | 3.7 | 3.5 | 3.1 | 2.7 | 2.2 | 2.0 | 1.8 | ||||
| Deficit in balance of goods and services | 4.2 | 5.4 | 6.0 | 4.9 | 6.8 | 6.1 | 5.6 | 5.2 | 4.7 | 4.4 | 4.2 | ||||
| Exports | 20.7 | 24.1 | 20.5 | 22.8 | 24.5 | 22.4 | 21.7 | 21.3 | 21.2 | 21.0 | 20.8 | ||||
| Imports | −25.0 | −29.5 | −26.5 | −27.6 | −31.3 | −28.5 | −27.4 | −26.5 | −25.9 | −25.4 | −25.0 | ||||
| Net non-debt creating capital inflows (negative) | −3.5 | −0.7 | −3.7 | −2.4 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | ||||
| Automatic debt dynamics 1/ | −3.3 | 0.6 | −1.5 | −3.2 | −1.1 | −0.4 | −0.7 | −0.7 | −0.7 | −0.7 | −0.5 | ||||
| Contribution from nominal interest rate | 0.7 | 0.7 | 0.5 | 0.4 | 0.6 | 0.4 | 0.4 | 0.5 | 0.7 | 0.7 | 0.9 | ||||
| Contribution from real GDP growth | −1.4 | −0.7 | −1.4 | −1.5 | −1.1 | −0.8 | −1.1 | −1.3 | −1.4 | −1.4 | −1.5 | ||||
| Contribution from price and exchange rate changes 2/ | −2.6 | 0.6 | −0.6 | −2.1 | −0.6 | … | … | … | … | … | … | ||||
| Residual, incl. change in gross foreign assets (2-3) 3/ | 6.1 | −1.2 | 3.6 | 2.2 | 0.1 | 0.5 | 0.9 | 1.0 | 1.2 | 1.3 | 1.3 | ||||
| External debt-to-exports ratio (in percent) | 87.5 | 76.1 | 93.7 | 79.8 | 76.5 | 90.3 | 99.1 | 105.5 | 109.5 | 112.9 | 116.4 | ||||
| Gross external financing need (in billions of US dollars) 4/ | 81.0 | 110.7 | 123.8 | 147.8 | 205.4 | 229.2 | 266.7 | 307.6 | 354.1 | 406.9 | 473.8 | ||||
| in percent of GDP | 6.5 | 9.0 | 9.1 | 8.8 | 11.1 | 11.5 | 12.2 | 12.8 | 13.2 | 13.7 | 14.3 | ||||
| Scenario with key variables at their historical averages 5/ | 20.2 | 18.4 | 16.9 | 15.7 | 14.8 | 13.9 | -3.4 | ||||||||
| Key Macroeconomic Assumptions Underlying Baseline | |||||||||||||||
| Real GDP growth (in percent) | 9.8 | 3.9 | 8.2 | 9.6 | 6.9 | 4.5 | 6.0 | 6.5 | 6.8 | 6.9 | 7.0 | ||||
| GDP deflator in US dollars (change in percent) | 18.8 | −4.9 | 2.8 | 13.0 | 2.7 | 3.5 | 3.2 | 3.5 | 3.9 | 4.0 | 3.9 | ||||
| Nominal external interest rate (in percent) | 4.7 | 3.8 | 2.8 | 2.7 | 3.4 | 2.2 | 2.3 | 2.7 | 3.5 | 3.3 | 4.4 | ||||
| Growth of exports (US dollar terms, in percent) | 26.6 | 15.0 | −5.6 | 37.7 | 17.9 | −0.9 | 6.2 | 8.3 | 10.1 | 10.3 | 10.0 | ||||
| Growth of imports (US dollar terms, in percent) | 31.6 | 16.6 | 0.0 | 29.0 | 24.2 | −1.3 | 5.0 | 6.9 | 8.3 | 9.2 | 9.4 | ||||
| Current account balance, excluding interest payments | −0.6 | −1.6 | −2.3 | −2.3 | −3.7 | −3.5 | −3.1 | −2.7 | −2.2 | −2.0 | −1.8 | ||||
| Net non-debt creating capital inflows | 3.5 | 0.7 | 3.7 | 2.4 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | ||||
Derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε = nominal appreciation (increase in dollar value of domestic currency), and α = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
India: External Debt Sustainability Framework, 2007-2017
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Debt-stabilizing non-interest current account 6/ | ||||
| Baseline: External debt | 18.1 | 18.4 | 19.2 | 18.2 | 18.7 | 20.2 | 21.5 | 22.5 | 23.2 | 23.7 | 24.2 | -3.6 | |||
| Change in external debt | 0.0 | 0.2 | 0.8 | −1.0 | 0.5 | 1.5 | 1.3 | 1.0 | 0.7 | 0.5 | 0.5 | ||||
| Identified external debt-creating flows (4+8+9) | −6.2 | 1.5 | −2.8 | −3.2 | 0.4 | 1.1 | 0.4 | −0.1 | −0.5 | −0.8 | −0.8 | ||||
| Current account deficit, excluding interest payments | 0.6 | 1.6 | 2.3 | 2.3 | 3.7 | 3.5 | 3.1 | 2.7 | 2.2 | 2.0 | 1.8 | ||||
| Deficit in balance of goods and services | 4.2 | 5.4 | 6.0 | 4.9 | 6.8 | 6.1 | 5.6 | 5.2 | 4.7 | 4.4 | 4.2 | ||||
| Exports | 20.7 | 24.1 | 20.5 | 22.8 | 24.5 | 22.4 | 21.7 | 21.3 | 21.2 | 21.0 | 20.8 | ||||
| Imports | −25.0 | −29.5 | −26.5 | −27.6 | −31.3 | −28.5 | −27.4 | −26.5 | −25.9 | −25.4 | −25.0 | ||||
| Net non-debt creating capital inflows (negative) | −3.5 | −0.7 | −3.7 | −2.4 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | −2.1 | ||||
| Automatic debt dynamics 1/ | −3.3 | 0.6 | −1.5 | −3.2 | −1.1 | −0.4 | −0.7 | −0.7 | −0.7 | −0.7 | −0.5 | ||||
| Contribution from nominal interest rate | 0.7 | 0.7 | 0.5 | 0.4 | 0.6 | 0.4 | 0.4 | 0.5 | 0.7 | 0.7 | 0.9 | ||||
| Contribution from real GDP growth | −1.4 | −0.7 | −1.4 | −1.5 | −1.1 | −0.8 | −1.1 | −1.3 | −1.4 | −1.4 | −1.5 | ||||
| Contribution from price and exchange rate changes 2/ | −2.6 | 0.6 | −0.6 | −2.1 | −0.6 | … | … | … | … | … | … | ||||
| Residual, incl. change in gross foreign assets (2-3) 3/ | 6.1 | −1.2 | 3.6 | 2.2 | 0.1 | 0.5 | 0.9 | 1.0 | 1.2 | 1.3 | 1.3 | ||||
| External debt-to-exports ratio (in percent) | 87.5 | 76.1 | 93.7 | 79.8 | 76.5 | 90.3 | 99.1 | 105.5 | 109.5 | 112.9 | 116.4 | ||||
| Gross external financing need (in billions of US dollars) 4/ | 81.0 | 110.7 | 123.8 | 147.8 | 205.4 | 229.2 | 266.7 | 307.6 | 354.1 | 406.9 | 473.8 | ||||
| in percent of GDP | 6.5 | 9.0 | 9.1 | 8.8 | 11.1 | 11.5 | 12.2 | 12.8 | 13.2 | 13.7 | 14.3 | ||||
| Scenario with key variables at their historical averages 5/ | 20.2 | 18.4 | 16.9 | 15.7 | 14.8 | 13.9 | -3.4 | ||||||||
| Key Macroeconomic Assumptions Underlying Baseline | |||||||||||||||
| Real GDP growth (in percent) | 9.8 | 3.9 | 8.2 | 9.6 | 6.9 | 4.5 | 6.0 | 6.5 | 6.8 | 6.9 | 7.0 | ||||
| GDP deflator in US dollars (change in percent) | 18.8 | −4.9 | 2.8 | 13.0 | 2.7 | 3.5 | 3.2 | 3.5 | 3.9 | 4.0 | 3.9 | ||||
| Nominal external interest rate (in percent) | 4.7 | 3.8 | 2.8 | 2.7 | 3.4 | 2.2 | 2.3 | 2.7 | 3.5 | 3.3 | 4.4 | ||||
| Growth of exports (US dollar terms, in percent) | 26.6 | 15.0 | −5.6 | 37.7 | 17.9 | −0.9 | 6.2 | 8.3 | 10.1 | 10.3 | 10.0 | ||||
| Growth of imports (US dollar terms, in percent) | 31.6 | 16.6 | 0.0 | 29.0 | 24.2 | −1.3 | 5.0 | 6.9 | 8.3 | 9.2 | 9.4 | ||||
| Current account balance, excluding interest payments | −0.6 | −1.6 | −2.3 | −2.3 | −3.7 | −3.5 | −3.1 | −2.7 | −2.2 | −2.0 | −1.8 | ||||
| Net non-debt creating capital inflows | 3.5 | 0.7 | 3.7 | 2.4 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 | ||||
Derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε = nominal appreciation (increase in dollar value of domestic currency), and α = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
