India’s general government debt, which includes both central and state governments, has crossed the 205 lakh crore mark for the first time in its history, according to the latest data released by the Reserve Bank of India (RBI). The debt-to-GDP ratio, which measures the size of the debt relative to the economic output, has also increased to 48.5% as of March 2021.
The IMF has warned that India’s debt situation may worsen in the medium term due to several factors, such as low growth prospects, high fiscal deficits, rising interest rates, and rising inflation. The IMF has projected that India’s debt ratio will peak at 82.3% in FY25 and then gradually decline to 80.5% in FY29. However, this projection assumes that India will maintain a primary deficit (the difference between revenue and expenditure excluding interest payments) of around 4% of GDP for a decade.
The IMF has also cautioned that India faces long-term risks from its external debt, which stood at US$ 620.7 billion as of March 2022. About half of this debt is denominated in US dollars, making it vulnerable to exchange rate fluctuations and capital outflows. The IMF has urged India to diversify its sources of financing and reduce its reliance on short-term borrowings.
The Centre has disagreed with some of the IMF’s findings and argued that India’s debt is sustainable and manageable within its growth trajectory. The Centre has claimed that India’s real growth rate will be higher than expected due to various reforms and initiatives undertaken by the government. The Centre has also asserted that India’s fiscal deficit will be lower than projected due to higher tax revenues and lower subsidies.
The Centre has also pointed out that India’s external debt is mainly composed of concessional loans from multilateral institutions such as the World Bank and Asian Development Bank (ADB), which have low interest rates and favourable terms. The Centre has said that these loans are aimed at supporting India’s development goals and enhancing its resilience to external shocks.
