Which of the following statements regarding the Interest Rate Growth Differential IRGD is are correc...........

Indian Economic System(CSC) Growth and development

Which of the following statements regarding the Interest Rate Growth Differential (IRGD) is/are correct?

1. It is the difference between the interest rate and the growth rate in an economy.

2. The phenomenon of a negative IRGD in India, is not due to lower interest rates but much higher growth rates.

Select the correct answer using the code given below:

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Interest Rate Growth Differential :

Growth leads to debt sustainability in the Indian context but not necessarily viceversa.
Debt sustainability depends on the ‘Interest Rate Growth Rate Differential’ (IRGD), i.e., the difference between the interest rate and the growth rate.
Negative IRGD in India – not due to lower interest rates but much higher growth rates – prompts a debate on fi scal policy, especially during growth slowdowns and economic crises. Fiscal policy that provides an impetus to growth will lead to lower debt-to-GDP ratio.
Given India’s growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios.