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‘India’s debt-to-GDP ratio lowest among major economies’: FM Sitharaman sees fiscal space, hints at rate cut

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'India’s debt-to-GDP ratio lowest among major economies': FM Sitharaman sees fiscal space, hints at rate cut
Finance Minister Nirmala Sitharaman on Monday said India stands out in debt management among major economies, with an overall debt-to-GDP ratio of about 81%, even as the global economy faces rising volatility and uncertainty, PTI reported.Speaking at an event organised by the National Institute of Public Finance and Policy (NIPFP), Sitharaman warned that the ongoing Middle East conflict has evolved into a “systemic tremor threatening vital arteries of global energy”.She said the global economic environment is increasingly marked by volatility, uncertainty, complexity and ambiguity, alongside a sharp surge in public debt across countries.“World economy witnessing volatility, uncertainty, complexity, and ambiguity; global public debt has surged,” the finance minister said.On India’s fiscal position, Sitharaman noted that the country remains relatively well-placed compared to other major economies in terms of debt sustainability.“India stands out in debt management with overall debt-to-GDP ratio at 81 per cent, lowest among major economies,” she said.The finance minister also said India has sufficient fiscal space to respond to emerging challenges.“India has fiscal space; there’s room to support affected sectors, expand capex, and interest rate cut by RBI,” she said.Sitharaman underlined that geopolitical tensions, particularly in West Asia, are not just regional disruptions but have wider implications for global energy supply chains and economic stability.“Middle East conflict evolved into systemic tremor threatening vital arteries of global energy,” she said.Her remarks come at a time when global markets are grappling with elevated crude oil prices, supply chain disruptions and tightening financial conditions driven by geopolitical conflicts.

MPC meet begins amid inflation concerns

The Reserve Bank’s rate-setting panel on Monday began its three-day deliberations for the first bi-monthly monetary policy of the fiscal, with expectations of a status quo on the benchmark lending rate amid concerns of a potential spike in inflation due to the ongoing Middle East crisis.The outcome of the six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, is scheduled to be announced on Wednesday.The RBI has reduced the policy rate by a cumulative 125 basis points since February 2025, marking its most aggressive easing cycle since 2019. The last cut of 25 basis points came in December, while the central bank maintained a pause in its February policy.Experts said the MPC will factor in geopolitical tensions in Middle East, volatility in commodity prices and sharp currency movements, which have impacted the rupee.While retail inflation has moved closer to the RBI’s medium-term target of 4%, the recent surge in global crude oil prices has raised concerns about second-round effects on domestic prices, especially fuel, transportation and core inflation.Estimates suggest that every $10 per barrel increase in crude prices can push inflation higher by up to 0.60%. Crude, which had hovered around $60 per barrel for an extended period, has risen above $100 since the conflict began in late February.The rupee has also depreciated by over 4% since the start of the war, adding to imported inflation pressures.

Inflation targeting framework

The government has mandated the RBI to maintain retail inflation at 4%, with a tolerance band of +/-2%, for another five-year period ending March 2031.India adopted the inflation-targeting framework in 2016, with the MPC tasked to maintain annual inflation at 4% within a band of 2% to 6%. The framework has continued since then. As per the latest data, retail inflation rose to 3.21% in February from 2.74% in January.


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