India less threatened by debt than other asian economies, says Deloitte

26 March 2018 5 min. read
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According to a new report from global professional services firm Deloitte, the Asian economy is poised for stronger growth in 2018 than is broadly expected, although debt is a tangible threat to this scenario. India is in a particularly strong position in terms of debt service ratio, ahead of major economies such as China and Japan, and behind only Indonesia.

When viewed in the regional context, India’s position as an economic power is often overshadowed by the monumental economy of China. China not only has a higher population and GDP, but also exerts more influence on surrounding Asian economies due to the large amount of aid that it provides.

In the global context as well, while China and India are projected to be the top two economies in the world over the next three decades, China is expected to emerge as the largest by a fair distance. However, predictions of this nature fail to take into account a range of other dimensions that affect both economies.

Big Four accounting and advisory firm Deloitte has been considering a number of such relatively indirect factors when analysing the Asian economy in recent months. Late last year, the firm released analysis detailing the median ages of major economies across Asia, which revealed that Japan has the oldest population on the continent at a median age of 47.

General government gross debt

China’s median age of 37.6, while ten years younger than that of Japan, is well above the Asia average of 31. India’s median age, meanwhile, stands at 27.3, making it the second youngest country for the continent behind the Philippines. In essence, an ageing population has the ability to dampen other economic indicators such as growth in GDP.

Now, a new report from Deloitte titled ‘Voice of Asia’ highlights another factor that might pose a major risk to major economies in Asia; that of debt ratio. Overall, the report paints a bright picture for Asia in 2018, citing favourable domestic conditions, plans for infrastructure spending, and recovery in global demand as factors contributing to rapid economic growth over the next year.

The report underplays the presence of threats but suggests that, if anything were to threaten the region’s economic scenario, it would be the relatively high levels of debt in major economies. Since the Global Financial Crisis, liquidity has been an issue for a number of economies, and despite strong economies, borrowing has been the only resort for individuals, businesses and governments alike.

Households gross debt and Non- nancial corporations gross debt

The debt-levels by country are categorised by the report into general government gross debt, households gross debt, non-financial corporations gross debt, and the overall debt service ratio. When examined over the last ten years, these figures display relatively promising signs for the Indian economy, while they do not bode too well for major economies such as China, Japan, South Korea, or even Australia, which the report clubs within the Asian economy.

In terms of general government gross debt, India was the only country alongside Indonesia to see a decline over the ten years between 2006 and 2016, although its initial levels were considerably high. The ratio of debt to the GDP in India fell from 77% in 2006 to 70% in 2016, placing it in second behind Japan, which had a staggering debt to GDP ratio of 184% in 2006 that has since grown further to 239% in 2016.

Although China’s ratio was relatively low in 2006 at 25%, it jumped substantially over the next decade to reach 44% in 2016. Australia and South Korea also registered increases in their government debt ratio.

Debt services ratios for private non-financial sector

When the households gross debt is examined as a percentage of the GDP, India has remained steady since 2006, registering a 10% ratio in both years. Japan also saw a decline in this figure, from 59% in 2006 to 57% in 2016. China, however, saw a quadrupling of this figure, from 11% in 2006 to 44% in 2016.

The only figure in which India saw an increase was in the gross debt for non-financial corporations. On the back of a sea of non performing assets, the ratio for India increased from 38% to 45%, as did that of China from 105% to 165%. Japan registered another decrease in this category from 100% to 92%.

The last metric used by the report is the debt service ratio, measured as the ratio of debt payments of a country to its earnings from exports. This figure was measured between 1999 and 2017, and India registered the second lowest ratio after Indonesia. India’s ratio has been relatively stable when compared to the steady rise of China’s, and the fluctuation in the ratios of Australia and South Korea.