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Does Growth Lead to Debt Sustainability? Yes, But Not Vice-Versa! 73

forward rates, is less than 7.5 per cent. Assuming the lower range in the inflation target of 4 per
cent, this implies that even with a real growth rate of 3.4 per cent over the next five years, the
IRGD is highly likely to be negative going forward. In fact, as the average rate of government
borrowing is a weighted average of the rates over various maturities, the cost of borrowing is
likely to be significantly lower. Therefore, the IRGD is very likely to be negative for India in a
5-year horizon.

Figure 25a: Trends in 5-year Forward Rates For Different Maturities

Figure 25b: Trends in forward rates for different maturities

Source: ZCYC data has been taken from CCIL at fortnightly frequency for the past 10 years
Notes: f1_5 denotes 5-yr forward rate of bonds with 1-yr maturity period.