India’s debt levels reducing as Govt sticks to plans on fiscal consolidation

Indian government borrowings, in sharp contrast with elevated debt levels in the West, are gradually reducing as a percentage of national output as the 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. Reducing debt burdens is necessary to create fiscal space for new investments in priority areas, including green transition,” Reserve Bank of India Governor Shaktikanta Das said.

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

According to 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. 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.