Debt Woes Derail India’s Plan to Deliver Bigger Fiscal Boost

On the night of May 12, India’s Prime Minister Narendra Modi set the nation of 1.3 billion people abuzz with promises of unleashing a massive stimulus to shore up an economy facing its deepest recession in decades, Bloomberg News reported. A week later and after five drawn-out press conferences by his Finance Minister Nirmala Sitharaman, the entire package of about 21 trillion rupees ($277 billion), or 10% of India gross domestic product, underwhelmed economists and investors alike. Many worked out that the actual fiscal cost amounts to just about 1% of GDP, sending stocks and the rupee down in the immediate aftermath. The looming threat of a credit rating downgrade to junk may have held officials back from delivering a more immediate boost to the economy through, for example, direct cash handouts to citizens. India is facing public debt levels of 77% of gross domestic product, according to Fitch Ratings Ltd., and a fiscal deficit in double digits this year, putting it on the path for a rating cut. Read more

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