By Aditya Raghunath
Investing.com -- A report by brokerage firm UBS Securities said that as the fiscal position of India gets worse, there are concerns over elevated public debt and higher fiscal deficit at 11.8% in 2020-21.
“The fiscal position has deteriorated after the pandemic and now we estimate fiscal deficit widened to 11.8% of GDP in FY21, up from 7.8% in FY20,” said UBS Securities India chief economist Tanvee Gupta Jain.
The report said that India will have the third-highest public debt to GDP ratio in emerging markets after Argentina and Brazil in 2021.
One important point to note is that UBS said that India’s public debt is largely domestically funded and the central bank along with local banks hold a large portion of it, thus reducing risk.
“We do see a risk of a downgrade in the sovereign rating by one of the three rating agencies in the next 12-18 months,” said the report.
Gupta Jain said that the ability and speed with which the government can deliver on budget promises will be ley to debt sustainability. This will especially be true for the aggressive divestment targets and the higher public capex to help support nominal GDP growth.
However, the wide fiscal deficit increases risks of the private sector being crowded out, and slows debt portfolio flows from abroad, she said.