High debt burden could hamper India’s ability to provide stimulus: Moody’s

India’s high government debt could limit its ability to give a fiscal stimulus to the economy, Moody’s Investors Service noted in a report on credit conditions in Asia.

Job losses, income shocks and the gaps in health infrastructure pose ‘highly negative risks’ for the country’s growth prospects, Moody’s added. “In India, a high government debt burden will limit the extent of fiscal support, although the government has undertaken a number of measures to improve policy transmission and broader structural reforms,” it pointed out. It warned that the sheer magnitude of the recession would lead to a degree of economic scarring in the more vulnerable Asian economies, which was likely to have persistent effects on potential output.

The rating agency expects income and social inequality to widen in 2021, while the number of people falling into poverty will rise significantly, erasing three to four years’ gains on poverty reduction. The rating agency said the traditional emphasis on infrastructure spending to support growth may now have to expand to include social spending on healthcare and pensions.