Debt-To-GDP Ratio To Drop To 77 Pc By FY31, But Debt Affordability Poor Than Peers
India’s gross general government debt-to-GDP is estimated at around 81 per cent in FY25 and could edge up marginally in FY26, as lower inflation dampens nominal GDP growth.
Chennai: India’s debt-to-GDP ratio is projected to moderate to around 77 per cent by FY31 and further to 71 per cent by FY35 but will remain higher than the pre-pandemic average of 69 per cent. However, the combined interest payments of the Centre and state governments averaging 25.5 per cent of revenue receipts is much higher than its Asian peers as well as advanced economies.
Following the COVID-19 pandemic and the related fiscal pressures, India’s general government debt surged to 89 per cent in FY21. Post-pandemic, India’s gross general government debt-to-GDP ratio has been on a downward trajectory, moderating to an estimated 81 per cent in FY25. Despite the decline, India’s general government debt remains well above the pre-pandemic average of 69 per cent seen during FY15-19.
Since the pandemic peak, India’s general government debt-to-GDP is estimated to have moderated by 8 percentage points. Nominal GDP growth rates exceeding the effective nominal interest rate have been the key drivers of the moderation in India’s debt levels in the post-pandemic period. Additionally, the narrowing of the primary deficit in the aftermath of the pandemic has further supported the downward trajectory of government debt.
India’s gross general government debt-to-GDP is estimated at around 81 per cent in FY25 and could edge up marginally in FY26, as lower inflation dampens nominal GDP growth. However, the medium-term debt dynamics remain intact with India’s debt-to-GDP ratio projected to moderate to around 77 per cent by FY31 and further to 71 per cent by FY35, finds Care Ratings.
Although the moderating government debt level is a positive development, India fares poorly in terms of debt affordability, with the combined interest payments of the Centre and State governments averaging 25.5 per cent of revenue receipts over the last five years. India’s interest burden is much higher compared to other emerging economies such as Indonesia at 13.3 per cent, the Philippines 13.9 per cent, followed by Thailand 5.8 per cent and China 3.5 per cent at much lower levels. Though advanced economies have a high debt-to-GDP ratio, the interest payment-to-revenue receipts ratio is in the range of 7-15 per cent for the US, UK and Italy, whereas it is much lower for economies such as Japan at 4.2 per cent, France 3.3 per cent and Germany 1.7 per cent.
