The government debt burden has been a challenge that has ravaged both developed and developing economies. The major cause of this problem has been the efforts by respective governments to bridge the fiscal budget deficit experienced by many economies.
The Indian government has perceived the global debt crisis in a light hand, saying that India is strong enough and they are prepared to face any kind of situation that will arrive in global scenario. However the response misses the fact. The fact is that Indian currency and its inflation remained the worst performers among the Asian peers during 2011 and the first half of 2012. Also, unlike China, India doesn't own enough reserves that can be used to ensure growth during the time of crisis.
Indian economy which is already under pressure of weak GDP, poor IIP and elevated inflation rate, is also weighed down by its increasing government debt. The debt to GDP ratio is a key indicator of the fiscal health of the government. India's fiscal capacities have been shrinking since 2008, along with other Asian emerging markets. This is more of a threat, as India's gross public debt to GDP ratio is still among the highest in the region as it increased from 66.2% to 70% between 2007 and first half of 2012. The average government debt levels of the top 10 emerging market economies, including China, Russia and Indonesia, has halved to 25%, from 50% of GDP since 2000. Brazil and India are the two countries with the highest government debt ratios at almost 70% of GDP, which is however, still lower than the developed countries' average.
High debt to GDP ratio tends to dampen the credit worthiness of the Indian economy. Viewing its increasing debt, Fitch and S&P (Standard and Poor) have cut India's outlook to negative from stable. The government has laid out a five-year roadmap to reduce the fiscal deficit. But doubts remain about the credibility of the plan and whether the government will be able to stick to it.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Read the latest Market Commentary
What else is happening in the markets today? Dig in...
Indian share markets end deep in the red with the Sensex down by 598 points and the Nifty ending down by 164 points.
TORRENT POWER share price is trading up by 5% and its current market price is Rs 429. The BSE POWER is up by 0.6%. The top gainers in the BSE POWER Index are TORRENT POWER (up 5.2%) and ADANI POWER (up 9.9%). The top losers are POWER GRID (down 0.7%) and NTPC (down 1.2%).
DILIP BUILDCON share price is trading up by 8% and its current market price is Rs 719. The BSE CAPITAL GOODS is down by 0.6%. The top gainers in the BSE CAPITAL GOODS Index are DILIP BUILDCON (up 8.5%) and BHEL (up 6.5%). The top losers are CARBORUNDUM UNIVERSAL (down 0.1%) and HINDUSTAN AERO. (down 1.8%).
BALRAMPUR CHINI share price is trading up by 10% and its current market price is Rs 213. The BSE 500 is down by 0.3%. The top gainers in the BSE 500 Index are BALRAMPUR CHINI (up 10.3%) and BALMER LAWRIE (up 13.6%). The top losers are DIVIS LABORATORIES and PIDILITE INDUSTRIES .
INDIAN ENERGY EXCHANGE share price is trading up by 7% and its current market price is Rs 319. The BSE POWER is up by 0.9%. The top gainers in the BSE POWER Index are INDIAN ENERGY EXCHANGE (up 6.6%) and ADANI POWER (up 9.9%). The top losers are POWER GRID (down 0.5%) and NTPC (down 0.8%).
ITD CEMENTATION INDIA share price is trading up by 8% and its current market price is Rs 93. The BSE REALTY is up by 0.3%. The top gainers in the BSE REALTY Index are ITD CEMENTATION INDIA (up 8.5%) and INDIABULLS REAL EST (up 10.3%). The top losers are PRESTIGE ESTATES and GODREJ PROPERTIES (down 0.2%).
View More Indian Share Market NewsLast time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.
In this video, I'll show you how to get started on the path to daily trading profits.
An Indian company founded three decades ago in a garage caught my attention...
In this video, I'll show you how to allocate your capital as a day trader.
More
Equitymaster requests your view! Post a comment on "India's rising Debt to GDP ratio". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!