India's Public Debt is Manageable

There has been a lot of discussion about high fiscal deficit that India is experiencing right now especially with respect to the current debt crises in Europe and America. Here are my thoughts:

Composition of Public Debt:
Currently India's Central Government debt is 54.35% of GDP which looks relatively high especially given India's high fiscal deficit.
Central Government's public debt is largely internal. Out of the total public debt, only about 8.5% is external debt (about $250 Billion). Out of the total external debt, only about 20% represents short term debt. (See Source: 1 below)
Keeping external debt at manageable levels has been a conscious policy of the GOI, especially after the 1991 crises.

However, India is in a different league all together.
India's tax regime will go through a paradigm shift in next few years. There are other factors, apart from GDP growth that'll lead to a sustained northward movement of tax to GDP ratio.
Here's how:

GST and Direct Tax Code:

Implementation of GST and direct tax code, by all indications should happen from April 2011.
Direct tax code will simplify the indirect tax regime and procedure. This is expected to bring in more direct tax due to increase in compliance. Ditto with GST. GST will simplify the indirect tax structure and India will truly become a single market.

Inflation:

India's WPI inflation for past decade has averaged 5.2%. (See Source: 2 below) There is no reason to believe that the there will be any substantial downward movement in the trend in medium term. This high inflation will also lead to higher tax collection in nominal terms, everything else being equal.

UID Project:

Enrolling for Unique ID Project (UID) will start in FY12. This initiative will go a long way in ushering in transparency. This initiative will also simplify governance and bring in capabilities to the government that they have only dreamed of. Transparency will (hopefully) reduce the black market activities, tax leakage and should lead to tax buoyancy apart from the benefit of sharply targeted subsidies.

Demographic Dividend:

India starts getting demographic dividend now. Demographic dividend causes economic boom as the proportion of working population to total population peaks.

The combined effect of all the above, over a period of time is substantial movement of TAX-GDP ratio northwards.


References:
Govt of India : http://finmin.nic.in/stats_data/nsdp_sdds/index.pdf
RBI : http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/BCCED060410.pdf