Despite higher borrowing, India far away from debt crisis
Principal Opposition Congress has launched an attack on the government over its burgeoning debt, stating that in the last nine years, the Central government’s total debt has increased from Rs 55 lakh crore to Rs 155 lakh crore—an increase by three times since 2014. If taken at face value, this argument looks valid and should be a cause for concern. However, unlike the US government, the Indian government is far from being in a debt crisis.
The Union government’s outstanding liabilities (after adjusting cash balance) are estimated to be Rs 155.77 lakh crore as per the Budget 2023. But an absolute number without a context or comparison does not tell the full story. The Central government’s debt-to-GDP ratio at the end of 2022–23 stood at 57%, which was better than the 60% it touched at the end of 2020–21, the year when our economy was hit the hardest due to pandemic-induced lockdowns. Things have begun to improve since then. The government, which had reported a fiscal deficit of 9.3% in FY21, closed the last financial year (FY23) with a fiscal deficit of 6.4%. It now targets a fiscal deficit of 5.9% in FY24.
The government has been doing well when it comes to managing its finances and has constantly been able to pull one rabbit or the other out of the fiscal hat to ensure it does not go down the slippery slope of fiscal mismanagement. A few things have also started falling in place: for instance, tax collections have become robust in the past two years. The gross tax collection by the Centre has galloped from Rs 20 lakh crore in 2020–21 to Rs 30 lakh crore in 2022–23, a jump of 50% in two years. The government has set a target of Rs 33.6 lakh crore in FY24.
Putting the Congress allegation in context, it’s a fact that in FY14, the Centre’s debt was 47.5% of the GDP (much lower than the current 57%). A decade ago, the combined debt of the Central and state governments was 67% of the GDP, but today, it is hovering around 85%. Mind you, borrowings account for 34% of the Centre’s sources of funds, and 20% of these funds go into paying interest every year. In sum, the general level of indebtedness of the government has indeed been higher than historically recorded numbers. But the overall national debt situation is very much under control.