What are the key factors that contribute to India's high debt compared to China and how does the IMF view the risks
India's debt is comparable to that of China, but the risks associated with it are reportedly moderated according to the IMF.
- One key factor contributing to India's high debt compared to China is its fiscal deficit, which has been a persistent issue. The Indian government has struggled to rein in its spending and increase revenue, leading to a higher rate of borrowing.
- Another factor is India's large and growing population, which puts pressure on the government to invest in infrastructure, social welfare, and other development programs. Funding these projects adds to the country's debt burden.
- India also faces challenges in revenue generation, with a large informal economy and issues of tax evasion. This adversely affects the government's ability to meet its expenditure requirements without resorting to borrowing.
- India's debt is primarily denominated in domestic currency, which reduces the vulnerability to currency fluctuations compared to foreign currency-denominated debt in China.
- India has a diversified investor base, which mitigates the risk of large-scale capital flight in the event of economic turmoil.
- India's financial sector is relatively more regulated compared to China, which helps in managing risks and potential defaults.
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