Govt debt set to hit historic high of 91% of GDP in FY21, says report

General government debt -- which is the combined liabilities of the Centre and states -- is likely to hit a record 91 per cent of GDP this fiscal, a brokerage report said on Wednesday.

This will be the highest in record since data began to be maintained in 1980.

General government debt-to-GDP ratio stood at 75 per cent in FY20, according to the report by economists of Motilal Oswal Financial Services.

The debt ratio is likely to be at a high 80 per cent by FY30 and is unlikely to fall to the targeted 60 per cent even by FY40 without further hurting growth, it added.

The government's capital outlays have been playing a bigger role in the overall economic growth for the past many years.

At the same time, since FY16, government debt has also been rising continuously.

Government debt stood at 66.4 per cent of GDP in FY 2000 and 66.6 per cent in FY15. Since then, it has been heading north at a faster pace, reaching 75 per cent in FY20.

The report says unless private spending picks up strongly, real GDP growth over the next decade will be slower, averaging at 5-6 per cent as against 7 per cent in the 2010s.

"The combined general government debt rose to 75 per cent of GDP in FY20 from 70 per cent in FY18. It is likely to reach 91 per cent of GDP in FY21, which is the highest since 1980 when data was made available and will stay at above 90 per cent of GDP up to FY23, before moderating slowly to 80 per cent by FY30," the report said.

A surge in public debt will restrict the government's ability to spend significantly in the current decade, as it has done in the past few years, it said.

While real GDP growth averaged at 6.8 per cent between FY14 and FY20, real fiscal spending grew at an average of 9 per cent during the period.

"Since a large part of non-interest revenue spending like defence, salaries and pensions is fixed, there is a high possibility fiscal investment will grow at an even slower rate in the current decade," it added. 

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