Mapping out the public debt trajectory

Worries about India’s public debt trajectory have been growing since the Finance Ministry announced an accommodative Budget for FY22/23. But under reasonable assumptions for nominal GDP and interest rates, the Finance Ministry would not need to keep policy any tighter than it was during the pre-virus period in order to bring the debt burden down. The big risk is that interest rates could rise by more than we expect, though even then there would be tools at policymakers’ disposal.