India's Government Debt: A Comparative Analysis by Nirmala Sitharaman


 In a recent social media post, Finance Minister Nirmala Sitharaman reassured the nation about the safety and prudence of India's government debt. Amidst ongoing political discourse surrounding economic indicators, Sitharaman's remarks provide clarity on India's fiscal position in comparison to other global players.

Debt-to-GDP Ratio: A Benchmark for Stability

 Sitharaman highlighted a crucial metric: India's debt-to-GDP ratio stood at 81% in FY22. This figure, when juxtaposed with other major economies like Japan, the US, France, and the UK, portrays India in a favorable light. While India maintains an 81% ratio, Japan is at 260.1%, the US at 121.3%, France at 111.8%, and the UK at 101.9%. This comparison underscores India's relative fiscal prudence.

External Debt Dynamics: A Closer Look

Delving deeper into external debt dynamics, Sitharaman pointed out India’s robust position. India’s share of short-term debt in total external debt is a mere 18.7%, lower than several emerging economies including China, Thailand, Turkey, Vietnam, South Africa, and Bangladesh. A lower proportion of short-term debt translates to less immediate repayment pressure, a reassuring factor for fiscal stability.

Fiscal Responsibility Amidst Pandemic Challenges

The recent surge in debt levels, attributed to the COVID-19 pandemic, prompted a fiscal stimulus response. This is evident in the spike in the Centre's fiscal deficit to 9.2% of GDP in FY21, eventually moderating to 5.8% in the revised estimates for FY24. Currently estimated at 5.1% for the ongoing fiscal year, this trajectory reflects a concerted effort towards fiscal consolidation.

A Roadmap to Fiscal Prudence

While acknowledging the impact of COVID-19 on debt levels, experts anticipate a gradual improvement. The aim is to align with the Fiscal Responsibility and Budget Management (FRBM) framework, which prescribes an overall debt level of 60% of GDP. Though India is currently above this threshold, sustained progress is anticipated over the coming years.

India's External Debt: Rupee-Denominated and Resilient

Sitharaman also shed light on the composition of India's external debt. Overwhelmingly rupee-denominated, with less than 5% sourced from bilateral and multilateral channels, India's exposure to exchange rate volatility remains minimal. This underscores the resilience of India's debt portfolio amidst global economic fluctuations.

Conclusion: A Legacy of Growth and Responsibility

In conclusion, Sitharaman emphasized the NDA government's commitment to fostering a legacy of growth, transparency, and responsibility. India's positioning as the third least indebted country among low and middle-income economies, coupled with prudent debt management strategies, augurs well for the nation's economic resilience and future prospects.