Media Spreads half-truths about Central Government debt under Narendra Modi

Media Spreads half-truths about Central Government debt under Narendra Modi

- in Politics
@Ajay Rana

On January 19, 2018, several media houses reported how the central government debt had greatly increased under the Modi government. The headline of India Today shouted how the central debt under the Modi government had increased by 50%, and Economic Times reported that India’s debt increased by 50% in the Modi era, according to the 8th Edition of the Document. State on Public Debt that was published on Friday.

Soon, the anti-Modi brigade clung to the report and began to use it to ridicule the Modi government.

What the reports do not clarify:

The increase in debt is perfectly normal, in fact, India is better than many important economies in this parameter.

The central government borrows money (from internal and external sources) to finance the fiscal deficit. Public debt is nothing more than an accumulation of fiscal deficits over the years. Government debt in recent years has always increased. The important factor here is the sustainability of the debt, and the most important parameter to assess sustainability is the debt / GDP ratio (because as GDP increases, government revenues increase and, therefore, its capacity to increase debt service). In the case of India, the debt / GDP ratio of the central government has been hovering around 44-47% since 2010 and has shown an improvement in the Modi government.

Central Government Debt to GDP (%)

The above graph shows that the ratio has improved from 46.98% in 2013 to 45.11% in 2017. Similarly, the gross general public debt, which includes loans from both central and state governments, has oscillated between 67% and 72% from 2010 and it is expected that In constant decline until 2024.

Gross debt position (% of GDP)

The Ministry of Finance, in a recent press release, commented on the government debt.

The general liabilities of the central government are on a downward trajectory in the medium term and the government debt portfolio is characterized by a prudent risk profile. The government is mainly resorting to market-linked loans to finance its fiscal deficit. The conventional indicators of debt sustainability, that is, the debt / GDP ratio, the payment of interest on income, the actions of short-term debt / external debt / FRB in total debt indicate that the government’s debt profile it is comfortably in terms of parameters of debt sustainability and is constantly improving.

Under UPA, central government debt increased at a much higher Rate

While all the reports and tweets from the opposition leaders pointed to the 49% increase in central government debt under the Modi government, they conveniently forgot to compare it to what happened during the UPA government. OpIndia’s analysis shows that central government debt increased 68% under UPA-I and 89% under UPA-II. Overall, the debt more than tripled in 10 years of UPA. But why show the full picture when half helps your propaganda?

When it comes to foreign debt (loans from governments and foreign institutions), the figure registered an increase of 443% in UPA-I, 60% in UPA-II and 0.04% in the Modi government. This underlines the statement of the Ministry of Finance that the government is resorting mainly to market-linked loans to finance the fiscal deficit.

Thus, the number 49% is more hype and less substance. But it’s the election season, so expect much more deceptive news based on half-truths.

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