Page 69 - ES 2020-21_Volume-1-2 [28-01-21]

52 Economic Survey 2020-21 Volume 1

2.7 A closer look at the trends in interest rate and growth rate in India highlights a
perceptibly higher variability in the growth rates relative to interest rates over the past
two-and-a-half decades (Figure 3a). This implies that changes in IRGD are mostly
attributable to changes in growth rates rather than the changes in interest rates (Figure
3b, 3c, 3d). Thus, it is a higher growth that provides the key to the sustainability of debt
for India (Figure 2 b).

Figure 3: Change in GDP growth rate (γ) explains most of the variation in interest Rate Growth
Differential (i-γ) during last 25 years (FY1996 to FY2020)

Figure 3a: Decomposition of variation in (i-γ) Figure 3b: Variability in i and γ

25
g
20

i
(Per cent) 15 × ×

10

5

0

Figure 3c : Strong correlation between variation Figure 3d : No correlation between variation
in γ and variation in (i-γ) in i and variation in (i-γ)

Source: RBI, MoSPI

THE iRGD AND DEBT SuSTAiNABiLiTY FOR OTHER ECONOMiES

2.8 Similar to the Indian experience, a strong correlation between IRGD and incremental debt-
to-GDP ratio is seen for other countries (Figure 4). It may be seen from the Figures that the years
that correspond to negative IRGD are accompanied by a steeper decline in debt levels across the
countries.