India's burden of public debt has stayed within reasonable limits

The Centre has spent heavily on its developmental priorities without borrowing more than what our GDP growth can handle

- AMIT MALVIYA & KISHORE DESAI

In its recently released report on Article IV consultations with India, the International Monetary Fund (IMF) stated that in case of an adverse exigency, India’s debt to gross domestic product (GDP) ratio may go up to 100% by 2028. This reflects a worst-case scenario, like a widespread resurgence of covid, severe global economic downturn, etc, and definitely not what we can reasonably foresee in the near future. Still, such headline-grabbing statements have managed to put a spotlight on the reality of India’s public debt situation. This merits a deeper dive.

Any meaningful understanding of where India is placed on that parameter would require assessing the scale of the country’s public debt, its drivers and sustainability. To sharpen the focus of this op-ed, we limit the scope of our discussion to only the central government’s debt.

Scale: For fiscal year 2013-14, Reserve Bank of India (RBI) data suggests that the Centre's total debt was ₹58.6 trillion. This increased to ₹157.4 trillion by 2022-23. That's an addition of ₹98.9 trillion to the debt stock. But the absolute level of debt, taken in isolation, is inadequate to convey anything meaningful. For instance, the impact of ₹5 lakh debt on an individual who earns ₹2 lakh per annum will be different, compared to the same burden borne by someone who earns ₹20 lakh annually. Likewise, debt relative to income or output levels, or the debt-to-GDP ratio is a more relevant metric to comment on its scale. RBI data shows that by the end of fiscal 2013-14, central government debt was around 52.2% of India's GDP. By the end of 2022-23, this increased to 61%. Clearly, debt did increase over the last 9 years. Before moving any further, however, it's important to discuss why this happened.