India needs to moderate its elevated public debt levels to reduce interest burdens and improve its global credit rating, said Economic Affairs Secretary Ajay Seth at the ISAAC Centre for Public Policy Conference. He emphasized the importance of fiscal discipline and agility in navigating global uncertainties as the nation approaches a $4 trillion economy.
Seth noted that India’s high debt levels, relative to its tax revenues, limit its ability to respond to crises like the COVID-19 pandemic. “The interest outgo as a share of tax revenues is significantly higher compared to nations like Indonesia,” he stated, underlining the need for fiscal consolidation to build resilience and investor confidence.
While India actively engages with global credit rating agencies, a key hurdle remains the elevated debt ratio. Seth highlighted that credit rating agencies place about 15% weightage on governance, prompting India and other emerging markets to urge the World Bank to refine its World Governance Index methodology for greater objectivity.
On domestic fiscal trends, he pointed to a gradual improvement in the tax-to-GDP ratio—now at 18%, up from 16.5% a decade ago—with aspirations to reach 20% in the next 5–6 years. He also stressed the need for state governments to prioritize capital investments over current expenditure.
Seth advocated for differentiated credit ratings for state development loans to introduce market discipline, as currently, all such papers are treated uniformly regardless of a state’s fiscal health.
Commenting on global priorities, he observed a shift from energy transition to energy security in the post-pandemic geopolitical landscape, highlighting the evolving focus at recent international financial meetings.