India's debt to decline to 50-51% if it maintains a nominal growth rate of 10.5 %: SBI Funds

The report also projects that the government's debt will decline to 50-51 per cent by March 2031 if India continues to grow and maintains a nominal growth rate of 10.5 per cent until FY31.

It said "if we assume Nominal growth at 10.5 per cent until FY31 and fiscal deficit to consolidate to 4.0 per cent next year and stay put thereafter, government's debt could reduce to 50-51 per cent by FY31".

The government has already outlined in its Fiscal Responsibility and Budget Management (FRBM) document that it will focus on reducing its debt as a key fiscal target. It has set a goal to bring the debt-to-GDP ratio to around 50 per cent by the end of FY31.

SBI Funds has worked out a scenario where the government can meet this target without making drastic changes to its fiscal policy.

It says if India grows at a nominal rate of 10.5 per cent annually, the fiscal deficit is consolidated at 4 per cent in the next financial year. This means that between FY27 and FY31, the government can maintain a 4 per cent fiscal deficit and still achieve its debt reduction goals.

The report also highlights that a 4 per cent fiscal deficit at the Centre, along with an assumed 3 per cent deficit for states, is aligned with the levels considered favourable for an S&P credit rating upgrade.

The report further stated that if India achieves a slightly higher nominal growth at 11 per cent, the government may not need to make any further cuts in the fiscal deficit. In this case, even if the deficit remains at 4.4 per cent, the debt reduction targets could still be met.

This analysis in the report suggests that India can strike a balance between economic growth and fiscal consolidation without implementing aggressive spending cuts. The government's focus on reducing debt aligns with global trends, where countries are prioritizing lower debt levels for financial stability and better credit ratings.

With India's economy growing steadily, achieving a nominal growth rate of 10.5-11 per cent over the next few years could help the government manage its fiscal deficit while keeping public debt under control. (ANI)