Economic Survey 2023: India's public debt profile relatively stable

India's debt portfolio is relatively stable owing to low currency and interest rate risks, according to the Economic Survey 2022-23.

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

India's sovereign external debt is entirely from official sources, which insulates it from volatility in the international capital markets, the survey notes.

"Public debt in India is primarily contracted at fixed interest rates, with floating internal debt constituting only 1.7% of GDP in end-March 2021. The debt portfolio is, therefore, insulated from interest rate volatility, which also provides stability to interest payments," says the Economic Survey.

Given the unprecedented fiscal expansion in 2020, rising government liabilities have emerged as a significant concern across the globe. The IMF projects the global government debt at 91% of GDP in 2022, about 7.5 percentage points above the pre-pandemic levels.

For India, the total liabilities of the Union government, which were relatively stable as a percentage of GDP over the past decade, witnessed a sharp spike in the pandemic year FY21. This spike in debt resulted from the pandemic-induced higher Government borrowings to finance the additional expenditure needs, given the strained revenues and sharp contraction in the GDP. Total liabilities of the Union Government moderated from 59.2% of GDP in FY21 to 56.7% in FY22.

Over the last few years, the proportion of dated securities maturing in less than five years has declined, whereas long-term securities have shown an increasing trend.

The emphasis on capex in recent years is expected to boost GDP growth directly, and indirectly through multiplier effects on private consumption expenditure and private investment, the survey points out.

Higher GDP growth would thereby facilitate buoyant revenue collection in the medium term, and thereby enable a sustainable fiscal path, it adds.

The General Government Debt to GDP ratio increased from 75.7% at the end of March 2020 to 89.6% at the end of the pandemic year FY21. It is estimated to decline to 84.5% of GDP by end-March 2022.

The high fiscal deficit to GDP ratio witnessed in the aftermath of the pandemic is a concern for countries worldwide, the survey says.