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While Pakistan is Constantly reaching out to Pakistan to Get Whatever it Could, India is financial strong enough with more than $600 Bn as Forex Reserves last reported.India’s clarification on the IMF debt report aims to dispel misconceptions and provide a nuanced understanding of its fiscal situation. The emphasis on rupee-denominated debt, a decline in government debt, and a commitment to fiscal consolidation reflect the government’s proactive approach to economic management amidst global uncertainties.

India recently responded to the International Monetary Fund’s (IMF) Article IV consultations, addressing misconceptions and providing clarity on various aspects related to its general government debt. Key points to understand India’s fiscal situation:

1. Global Economic Challenges:

India acknowledges the impact of global shocks, including the global financial crisis and the COVID-19 pandemic, on the world economy. Despite these challenges, India asserts that it has performed relatively well, positioning itself below the debt level recorded in 2002.

2. Rupee-Denominated Debt:

The finance ministry stresses that the majority of India’s General Government Debt is in rupees, minimizing reliance on external borrowings. This crucial point ensures low rollover risk and limited exposure to exchange rate volatility, as noted in the IMF report.

3. Exploring Extreme Scenarios:

The IMF report considers various scenarios, including extreme possibilities such as events similar to the COVID-19 pandemic. It suggests a potential “100 percent of debt to GDP ratio” for India by FY2028 under adverse shocks. However, India clarifies that this extreme scenario is a worst-case consideration.

4. Favorable Circumstances and Debt Projections:

Contrary to potential misinterpretations, the IMF report also highlights that, under favorable circumstances, India’s General Government Debt to GDP ratio could decrease to below 70 percent by FY2028. This counters any notion that debt would inevitably exceed 100% of GDP in the medium term.

5. Government Debt Decline:

The finance ministry reveals a significant decline in the general government debt, covering both states and the Centre. From around 88 percent in FY 2020-21, the debt has reduced to approximately 81 percent in 2022-23, indicating a positive trajectory.

6. Fiscal Consolidation Target:

The Centre affirms its commitment to achieving fiscal consolidation, aiming to reduce the fiscal deficit to below 4.5 percent of GDP by FY 2025-26. This commitment underscores the government’s efforts to maintain fiscal discipline and stability.

7. Medium-Term Debt Outlook:

India’s response clarifies that the IMF report considers a wide range of scenarios, and the extreme projections do not necessarily reflect the expected trajectory. The medium-term outlook for India’s debt-to-GDP ratio is subject to various factors, including economic conditions and policy measures.

8. Resilience Amid Global Challenges:

India emphasizes its resilience in the face of global challenges, highlighting its ability to navigate economic downturns and crises. The country’s performance relative to global counterparts indicates a robust economic foundation.

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