India’s fiscal deficit has been a concern for policymakers. To address this, the government can adopt a strategic borrowing approach. By issuing bonds with longer maturities, the government can reduce its reliance on short-term debt and minimize the impact of interest rate fluctuations.
For instance, the 10-year bond issued in 2022 had a yield of 6.2%, significantly lower than the 7.1% yield of the 5-year bond issued in the same period. This strategy can help narrow the fiscal deficit by 1.5% of GDP by 2025, as estimated by the IMF. Effective management of debt can also boost investor confidence and stimulate economic growth.
With a well-planned borrowing strategy, India can achieve fiscal stability and promote sustainable development.