Public Debt

Public debt [1]includes internal debt and external debt. In the expression public debt and “other liabilities”, “other liabilities” include outstandings against the various small saving schemes, provident funds etc. It includes private sector borrowings too.

[Public debt is justified as the government does not have adequate resources and taxation cannot be done beyond a point. It should be for productive reasons and also welfare reasons. The spiral of deficit and debt run the risk of undermining the country’s creditworthiness, devaluating the entire economy with grave social consequences. Therefore, it should be incurred judiciously.]

As on March’2015, total public debt stood at 71.6% of GDP and the 14^th finance commission recommends restricting public debt to 62% of GDP. India is officially reported has having to debt-to-GDP ratio of 84% by the IMF. The 15^th Finance Commission observed that following the recommended fiscal path, the centre will result in reduction in total liabilities to 56.6% in 2025-26.

External Debt

External debt includes both government and private debt.

• The share of non-government debt in total external debt is about 79%.
• India’s total external debt stood at $620.7 billion by March-end 2022.

[The government's strategy in external debt management emphasizes raising sovereign loans on concessional terms with longer maturities, regulating the levels of commercial borrowing and their end-use, rationalizing interest rates on NRI deposits, monitoring short-term debt, and encouraging non-debt creating capital flows.]

• By the end of March 2022, India's external debt had grown 8.2% to $620.7 billion as compared to the previous year's figure of $573.7 billion.
• India's external debt-to-GDP ratio came down to 19.9% in March-end 2022 from 21.2% during the same period in 2021.
• Foreign exchange reserves to external debt ratio have gone down marginally to 97.8% in March-end 2022 from 100.6% in the previous year.
• Out of the total external debt of India, 53.2% is dominated by the US dollar, and 31.2% is dominated by the Indian rupee.

External debt consists of

• long-term external debt which is the bulk part
• NRI deposits and multilateral loans
• commercial borrowings
• bilateral loans and trade credit

PR: Partially Revised; P: Provisional

Internal debt

Internal debt includes loans raised by the government in the open market through treasury bills and government securities, special securities issued to the RBI, and most importantly, various bonds like oil bonds, fertilizer bonds etc. The money sucked in by the MSS is also shown in the government’s statement of liabilities.

Other liabilities

The debt of the government also includes others like the outstanding against small-savings schemes, provident funds, deposits under special deposit schemes etc. These debts are shown under a separate head titled ‘other liabilities’

Other terms

Debt trap

A debt trap means that the government borrows to service the debt already contracted.

Debt service ratio

Debt-Service Ratio is the ratio of debt service payments (principal + interest) of a country to that country’s total external receipts.

PR: Partially Revised

External Debt-to-GDP ratio

It was 19.9% at end-March- 2022 and reduced to 19.4% at end-June-2022. 

It is 23.7% which is the 6^th lowest in the world. (Lower the ratio, better it is)

PR: Partially Revised