India’s debt remains high but manageable, says RBI; food inflation outlook stays benign

The Reserve Bank of India (RBI) today said that India’s public debt levels are elevated compared with the peer emerging market economies (EMEs) but debt servicing may not be a problem due to favourable interest – growth rate differential. On inflation, RBI said the outlook for food inflation remains favourable.

“On the fiscal front, India’s public debt levels, primary deficit and share of interest payment in government revenue have remained relatively on the higher side compared to peer emerging market economies (EMEs),” RBI said in the Financial Stability Report (June 2025).

“However, India’s fiscal position and credibility has enhanced significantly in recent years on account of ongoing fiscal consolidation, improvement in the quality of expenditure and earmarking of debt-to-GDP as the nominal anchor for the central government’s fiscal policy. In addition, the government debt is predominantly rupee-denominated,” it added. 

“The weighted average maturity of outstanding stock of central government market borrowings has risen from 10.4 years in 2018-19 to 13.2 years in 2024-25 and around 97% are issued at fixed rate.

Furthermore, unlike most other major economies, the flow data points to a lower debt trajectory supported by strong nominal GDP growth. Alongside, the favourable interest rate-growth rate differential of the central government augurs well for debt sustainability,” said the report.

On inflation, the report said that it has remained steady and the outlook for the food inflation remains favourable. “Domestic inflation has been steadily declining with the headline consumer price index (CPI) inflation recording a six-year low of 2.8 per cent in May 2025. The outlook for food inflation remains favourable on account of softening prices and robust crop production,” the report added. 

“Moreover, the risk of imported inflation largely remains low with the anticipated slowdown in global growth likely to soften commodity and crude oil prices, although the recent escalation of geopolitical tensions in the Middle East has led to heightened uncertainty. The near-term and medium-term outlook gives greater confidence of a durable alignment of headline inflation with the target of 4%, and it is likely to undershoot the target at the margin as per the projections of the RBI,” it said.