The chart says it all.
Realistically speaking there are only two ways of tackling this problem
1. Inflate away the debt ……accept higher inflation……..inflation reduces the value of debt and increases the value of asset….. currency takes a knock ……making India theoritically cheaper for foreigners… but inflation hurt only poor people
2. Extend and Pretend……makes it a long drawn process… muddle through economy……credit creation suffers as banking capital is slowly wiped away……..economy sees subpar growth for many years
Historically, Emerging Markets have chosen option 1 .India cannot choose option 1 now because it is bound by inflation targeting…..and option 2 is very painful.