Economic Survey 2023: ‘Modest’ Growth In Government Debt To GDP Ratio

Of the government's total net liabilities in end-March 2021, 95.1 per cent were denominated in domestic currency, while sovereign external debt constituted 4.9 per cent, implying low currency risk

Economic Survey 2023 highlighted that India’s debt-to-GDP ratio saw a modest rise as against its peers. The Union government's debt-to-GDP ratio increased only modestly over the last 15 years, while that of other countries has increased substantially over the same period. India's public debt profile is relatively stable and is characterised by low currency and interest rate risks, the survey noted.  

Of the Union Government's total net liabilities in end-March 2021, 95.1 per cent were denominated in domestic currency, while sovereign external debt constituted 4.9 per cent, implying low currency risk. Further, sovereign external debt is entirely from official sources, which insulates it from volatility in the international capital markets, the Economic Survey said. 

The change in the general government debt to GDP ratio from 2005 to 2021 has been substantial across the countries. For India, this increase is modest, from 81 per cent of GDP in 2005 to around 84 per cent of GDP in 2021. It has been possible on the back of resilient economic growth during the last 15 years leading to a positive growth-interest rate differential, which, in turn, has resulted in sustainable Government debt to GDP levels, the Economic Survey explained. 

IMF projects the global government debt at 91 per cent of GDP in 2022, about 7.5 per cent points above the pre-pandemic levels. In this global backdrop, the total liabilities of the Union Government moderated from 59.2 per cent of GDP in FY21 to 56.7 per cent in FY22 provisionally. 

The survey said, “Public debt in India is primarily contracted at fixed interest rates, with floating internal debt constituting only 1.7 per cent of GDP in end-March 2021. The debt portfolio is, therefore, insulated from interest rate volatility.”

“The General Government Debt to GDP ratio increased from 75.7 per cent of end-March 2020 to 89.6 per cent at the end of the pandemic year FY21. It is estimated to decline to 84.5 per cent of GDP by end-March 2022. The emphasis on capex-led growth will enable India to keep the growth-interest rate differential positive. A positive growth-interest rate differential keeps the debt levels sustainable,” the Economic Survey added.