Former Reserve Bank of India (RBI) Governor D Subbarao feels that India's high debt-to-GDP ratio is a cause for concern and that the government should make efforts to reduce it to a much lower level. He warned that a high debt-to-GDP ratio, which is one of the primary drivers of macroeconomic stability, might scare foreign investors and erode trust in the domestic economy.

Subbarao's remarks come two weeks before Union Finance Minister Nirmala Sitharaman's Union Budget 2024, and against the backdrop of economists' warnings about rising debt levels in Asia's third-largest economy.

Commenting on the Reserve Bank of India's (RBI) inflation targeting policy, Subbarao said that while the idea is 'largely good' because it makes RBI policy more predictable and stable, there are some questions about inflation caused by supply shocks and whether monetary policy is an effective tool for managing inflation in such a situation.

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Subbarao, on the other hand, believed that the RBI's inflation-targeting strategy is effective in India. "My short answer is yes," he explained. In the previous two years, the RBI has been fighting a losing struggle against consistently high inflation. The central bank-led rating committee has lifted interest rates by 250 basis points this cycle, but inflation remains above the medium-term target of 4%.

Furthermore, Subbarao spoke exclusively to Moneycontrol about a variety of themes, including the RBI's inflation-targeting approach, America weaponizing the dollar for political objectives, and the impact of adding Indian bonds in the JP Morgan index, among others.