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Indian government borrowings, in sharp contrast with elevated debt levels in the West, are gradually reducing as a percentage of national output as North Block sticks to its announced fiscal consolidation roadmap, aided by robust growth that promises to raise state revenues while obviating the need for more public debt.

“The challenges of debt sustainability in an environment of high interest rates and low growth at the global level can become new sources of stress,” Reserve Bank of India (RBI) Governor Shaktikanta Das said. “Reducing debt burdens is necessary to create fiscal space for new investments in priority areas, including green transition.”

According to the International Monetary Fund, India’s government debt eased to 81% of GDP in 2022 and is projected to decline to 80.5% in 2028 as compared with 88.5% during the pandemic year 2020.

“As regards India, given the fiscal consolidation path and improving growth prospects, we expect the general government debt to gradually come down,” he said.

India’s external debt to GDP ratio fell to 18.6% at the end of September 2023 from 20% at end-March 2022. The debt service ratio rose to 6.7% from 5.2% during the same period.

The foreign exchange reserves at $616.7 billion cover more than 10 months of projected imports for 2023-24 and about 97% of total external debt.

In comparison, the gross public debt to GDP ratio of advanced economies is projected to rise to 112.1% in 2023, an increase from 104.1% in 2019 . For emerging market economies, the gross public debt to GDP ratio is estimated to increase to 68.3% in 2023 from 55.9% in 2019.

“Amid the current headwinds, elevated levels of public debt are raising serious concerns on macroeconomic stability in many countries, including some of the advanced economies,” Das said.

  • Published On Feb 9, 2024 at 09:08 AM IST

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