MUMBAI, Dec 25: The central government's public debt to gross domestic product (GDP) ratio is estimated to decline to 50.5 per cent by March 1998. The ratio as on March 31, 1997, stood at 53 per cent.

The fiscal consolidation efforts have resulted in the reduction of public debt/GDP ratio from 56.9 per cent in the second half of 1980s to 55.5 per cent during the period 1991-98. The reduction is sharper since 1994-95, the Reserve Bank of India's Report on Currency and Finance 1996-97 said.

The RBI has said that although the fiscal correction measures have yielded in bringing down the domestic debt ratio to GDP, the concern for high-level of domestic debt stems from the rapid growth in interest payments, and the consequent adverse implications for the sustainbility of the fiscal situation.

The central bank has emphasised on the need for sharper fiscal corrections so as to stabilise the debt/GDP ratio at a sustainable level in the medium term. "The implications of the existing levels of debt are reflected in interest payments preempting a large share of revenue receipts of the central government," the RBI report -- released on Thursday -- said.

Interest payments accounted for 44.7 per cent of revenue receipts during 1996-97 and have been budgeted marginally lower at 44.4 per cent during 1997-98. The ratio of interest payment on public debt to revenue receipts stayed at a high level of 44.9 per cent during 1991-97 which is significantly higher than the ratio of 30.4 per cent during the later half of the eighties.

RBI has said that another implication of the high-level of public debt on government finances is discernible from the rising repayment burden of marketable debt. The repayment of market loans accounted for 26.3 per cent of gross borrowings during 1996-97.

"The high repayment obligations lead to higher amount of fresh borrowings from the market, adding pressure on real interest rates leading, in turn, to higher interest payments", said the report. Arresting the rising interest burden and repayment burden of debt necessitates sharper reduction in the growth of domestic debt. "This would require generation of adequate revenue account surpluses," it added.

The net market borrowings of the central government at Rs 26,356 crore during 1996-97 exceeded the budget target of Rs 25,498 crore.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.