HPAS/Allied Mains 2022 Answer Writing Challenge Day 207: Model Answer

Question: What is the Debt to GDP Ratio? Also describe the current status of Debt-to-GDP Ratio in India. (4 marks/ 60 words)

Answer:

The debt-to-GDP ratio is the ratio of a country’s public debt to its gross domestic product (GDP).

Debt to GDP= Total Debt of Country​ / Total GDP of Country
The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default, which could cause a financial panic in the domestic and international markets.

Current status of Debt-to-GDP Ratio in India

• The Centre’s debt-to-GDP was reached a 14-year high of about 59% in FY21.
• According to the 28th edition of the Status Report on India’s External Debt 2021-22, the External debt as a ratio to GDP fell marginally to 19.9 per cent as at end-March 2022.
• According to the latest Reserve Bank of India report on state finances, Punjab topped the states with the highest debt-to-GSDP at 49.1% in FY21.
• In 2017, the FRBM panel had suggested a ceiling for general government debt (both centre and states) of 60% of GDP by FY23. And within this overall limit, a ceiling of 40% was adopted by the Centre, and 20% by the states.