{"id":154545,"date":"2025-02-06T19:27:22","date_gmt":"2025-02-06T13:57:22","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=154545"},"modified":"2025-02-13T15:57:10","modified_gmt":"2025-02-13T10:27:10","slug":"debt-to-gdp-ratio","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/debt-to-gdp-ratio","title":{"rendered":"Shift from Fiscal Deficit to Debt-to-GDP Ratio"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The Union Government has announced a transition from fiscal deficit to <\/span><b>Debt-to-GDP ratio as the primary fiscal anchor <\/b><span style=\"font-weight: 400;\">starting from FY 2026-27 with an aim to reduce the Debt-to-GDP ratio to<\/span><b> 50\u00b11% by 2031.<\/b><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Debt-to-GDP Ratio<\/b><\/span><\/h2>\n<ul>\n<li><b>Definition:<\/b><span style=\"font-weight: 400;\"> Measures the total accumulated debt of a country, including past and present borrowings, relative to its Gross Domestic Product (GDP).<\/span><\/li>\n<li><span style=\"font-weight: 400;\">In numerical terms, the debt-to-GDP ratio is expressed as a percentage, to illustrate the number of years it would require to repay debt if GDP is dedicated solely to debt servicing<\/span><\/li>\n<li><b>Indicates:<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The level of debt compared to the size of the economy.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">A country&#8217;s ability to repay its debt based on economic performance.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Course<\/a><\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Formula:\u00a0<\/b><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter  wp-image-154548\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2025\/02\/611-67a4bea07905d.webp\" alt=\"Debt-to-GDP Ratio\" width=\"699\" height=\"132\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2025\/02\/611-67a4bea07905d.webp 773w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2025\/02\/611-67a4bea07905d-300x57.webp 300w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2025\/02\/611-67a4bea07905d-768x145.webp 768w\" sizes=\"(max-width: 699px) 100vw, 699px\" \/><\/p>\n<ul>\n<li aria-level=\"1\"><b>Debt-to-GDP Ratio Trends in Global Economies:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The global debt-to-GDP ratio in 2023 showed varied trends across economies<\/span><\/li>\n<li><b>Advanced economies (AEs)<\/b><span style=\"font-weight: 400;\"> excluding the U.S. saw a<\/span><b> 9 percentage point decline to 268% of GDP<\/b><span style=\"font-weight: 400;\">, driven by reductions in private and public debt.<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">The U.S. contributed to th<\/span><b>e global reduction, with private debt falling to 150% of GDP, though public debt rose to 123%.<\/b><\/li>\n<\/ul>\n<\/li>\n<li><b>Emerging markets (EMs) excluding China<\/b><span style=\"font-weight: 400;\"> experienced a <\/span><b>3 percentage point increase to 126% of GDP, <\/b><span style=\"font-weight: 400;\">driven by rising public debt.<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">China\u2019s total debt surged to 289% of GDP, with both public and private debt rising significantly.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-154522 alignright\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/65-67a4b4488f42c.webp\" alt=\"Debt-to-GDP Ratio\" width=\"354\" height=\"338\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/65-67a4b4488f42c.webp 570w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/65-67a4b4488f42c-300x287.webp 300w\" sizes=\"(max-width: 354px) 100vw, 354px\" \/><b>Low-income developing countries (LIDCs)<\/b><span style=\"font-weight: 400;\"> also<\/span><b> saw debt increase to 88% of GDP<\/b><span style=\"font-weight: 400;\">, primarily due to higher public debt, despite falling private debt.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Interpretation:<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>High Debt-to-GDP Ratio<\/b><span style=\"font-weight: 400;\">: Indicates high borrowings, raising concerns about repayment capacity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Low Debt-to-GDP Ratio:<\/b><span style=\"font-weight: 400;\"> Suggests better fiscal health with manageable debt levels.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Debt-GDP Reduction Target<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To achieve the debt-GDP reduction target, the government has outlined three scenarios based on different nominal GDP growth rates:<\/span><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter  wp-image-154523\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/66-67a4b4484e6f0.webp\" alt=\"Debt-to-GDP Ratio\" width=\"799\" height=\"162\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/66-67a4b4484e6f0.webp 1146w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/66-67a4b4484e6f0-300x61.webp 300w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/66-67a4b4484e6f0-1024x207.webp 1024w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/66-67a4b4484e6f0-768x155.webp 768w\" sizes=\"(max-width: 799px) 100vw, 799px\" \/><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This approach allows flexibility in choosing mild, moderate, or aggressive fiscal consolidation, balancing growth needs with debt sustainability.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Significance of maintaining Low Debt-to- GDP ratio:\u00a0<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A prudent debt-to-GDP ratio is essential for maintaining investor confidence and ensuring economic resilience.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Low Debt-to GDP Ratio is necessary to create space for growth-enhancing expenditures, which is critical to achieve the growth ambitions in the broader economy.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+CSE+Books\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC CSE Books From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Rationale for the Shift to Debt-to-GDP Ratio<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Long-Term Financial Sustainability: <\/b><span style=\"font-weight: 400;\">Assesses the nation\u2019s ability to manage debt over time.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>More Reliable Fiscal Measure:<\/b><span style=\"font-weight: 400;\"> Captures the cumulative impact of past and present fiscal policies, unlike the annual fiscal deficit, which only measures short-term performance.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Global Best Practices: <\/b><span style=\"font-weight: 400;\">Aligns with international fiscal standards, promoting greater flexibility in economic management.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Enhances Transparency:<\/b><span style=\"font-weight: 400;\"> It encourages shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Ensures proper disclosure of off-budget borrowings, reducing hidden liabilities.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Limitations of Debt-to-GDP Ratio<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ignore Debt Composition<\/b><span style=\"font-weight: 400;\">: Does not differentiate between internal (domestic) debt and external (foreign) debt.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Does Not Reflect Fiscal Policy Efficiency:<\/b><span style=\"font-weight: 400;\"> Fails to capture whether government spending is productive or wasteful.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>No Direct Correlation with Default Risk<\/b><span style=\"font-weight: 400;\">: Some high-debt countries remain solvent due to strong economic fundamentals.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>About Fiscal Deficit<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Definition: <\/b><span style=\"font-weight: 400;\">The difference between total government expenditure and total revenue (excluding borrowings) within a financial year.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Indicates:<\/b><span style=\"font-weight: 400;\"> The amount of borrowing required to meet government spending needs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Formula:<\/b><span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<\/ul>\n<table style=\"width: 99.9135%;\">\n<tbody>\n<tr>\n<th style=\"width: 100%; border-style: solid; border-color: #000000; background-color: rgba(184, 165, 217, 0.53); text-align: left; vertical-align: middle;\"><span style=\"font-weight: 400; color: #000000;\">Fiscal Deficit = Total Government Expenditure \u2212 Total Revenue (Excluding Borrowings)<\/span><\/th>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li aria-level=\"1\"><b>Interpretation:<\/b>\n<ul>\n<li><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-154524 alignright\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/67-67a4b447381c9.webp\" alt=\"Debt-to-GDP Ratio\" width=\"352\" height=\"330\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/67-67a4b447381c9.webp 505w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/06\/67-67a4b447381c9-300x281.webp 300w\" sizes=\"(max-width: 352px) 100vw, 352px\" \/><b>High Fiscal Deficit:<\/b><span style=\"font-weight: 400;\"> Suggests the government is spending more than its earnings, leading to increased borrowing.<\/span><\/li>\n<li><b>Low Fiscal Deficit:<\/b><span style=\"font-weight: 400;\"> Indicates better financial management, reducing reliance on debt.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Need of Controlling Fiscal Deficit:\u00a0<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Impact on Inflation:<\/b><span style=\"font-weight: 400;\"> A persistently high fiscal deficit can lead to inflation as the government may resort to printing more money to fund expenditures.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Improves Credit Ratings:<\/b><span style=\"font-weight: 400;\"> Lower fiscal deficit demonstrates fiscal discipline, improving India\u2019s credit ratings and reducing borrowing costs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Better Public Debt Management:<\/b><span style=\"font-weight: 400;\"> A lower fiscal deficit helps the government secure cheaper credit in international markets and attract investors.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc\/pw-only-ias?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Classes<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Conclusion<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The shift from <\/span><b>fiscal deficit<\/b><span style=\"font-weight: 400;\"> to<\/span><b> Debt-to-GDP ratio<\/b><span style=\"font-weight: 400;\"> as the primary fiscal anchor reflects India&#8217;s commitment to fiscal sustainability and transparency.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By adopting a structured debt-reduction strategy, the government aims to enhance financial stability, improve creditworthiness, and create fiscal space for growth-oriented investments, ensuring long-term economic resilience and responsible debt management.<\/span><\/li>\n<\/ul>\n<p><b><i>Ready to boost your UPSC 2025 preparation?<\/i><\/b> <a href=\"https:\/\/www.pw.live\/batches\/upsc?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\"><b><i>Join PW&#8217;s UPSC online courses<\/i><\/b><\/a><b><i> today!<\/i><\/b><\/p>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6375%;\">\n<tbody>\n<tr>\n<td style=\"width: 111.19%; text-align: center;\" colspan=\"2\"><span style=\"font-size: 18pt;\"><b>Also Read<\/b><\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Editorials<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/daily-current-affairs\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Current Affairs<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/quiz\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Current Affairs Quiz<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/mains-answer-writing\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Main Answer Writing<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-previous-year-papers?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Previous+Year+Papers\" target=\"_blank\" rel=\"noopener\"><b>Check Out Previous Years Papers From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/upsc-test-series-courses\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Test Series<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC NCERT Textbooks From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-modules?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Modules\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC Modules From PW Store<\/b><\/a><b>\u00a0<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Union Government has announced a transition from fiscal deficit to Debt-to-GDP ratio as the primary fiscal anchor starting from FY 2026-27 with an aim to reduce the Debt-to-GDP ratio to 50\u00b11% by 2031.<\/p>\n","protected":false},"author":11,"featured_media":154531,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"tags":[],"paper-wise":[2089],"subject":[2100],"acf":[],"_links":{"self":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/154545"}],"collection":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs"}],"about":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/types\/current-affairs"}],"author":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/comments?post=154545"}],"version-history":[{"count":2,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/154545\/revisions"}],"predecessor-version":[{"id":154551,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/154545\/revisions\/154551"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media\/154531"}],"wp:attachment":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media?parent=154545"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/tags?post=154545"},{"taxonomy":"paper-wise","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/paper-wise?post=154545"},{"taxonomy":"subject","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/subject?post=154545"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}