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Does Growth Lead to Debt Sustainability? Yes, But Not Vice-Versa! 51

2.6 This inequality has thus led to a negative IRGD for most of the years during the last
two and a half decades, which, in turn, has caused debt levels to decline. Figure 2c shows the
strong correlation observed between IRGD and change in general government debt. Since this
inequality reduces the fiscal costs of a debt rollover (Blanchard 2019), it expands the scope for
fiscal policy to (i) cater to slowdowns in aggregate demand and (ii) thereby enable growth to
foster debt sustainability.

2a: During the Last 25 years, i > γ is a Norm, Except for a Short Period
During the Asian Financial Crisis

2b: Trends in real growth rate (g) and change 2c: Strong correlation between (r-g) and
in debt-to-GDP ratio (d) change in debt to GDP ratio

Source: RBI, MoSPI
Note: d (t) - General Government Debt as a per cent of GDP at time period (t),
Debt for 2018-19 is RE and 2019-20 is BE.
Years represented in the figures are FY ending.
Nominal interest rate is the weighted average interest rate on Central Govt securities,
Real interest rate is calculated using the Nominal interest rate and GDP deflator