Debt on Indian Government

India’s debt is highest among the emerging economies. The report on the Indian Government shows that the total public debt has increased to 68 % of GDP. In 2021, the burden percentage of GDP jumped to 60.5% due to the pandemic. The lockdowns imposed have pushed the Indian economy into recession and negative economic growth. After the second wave, the Indian Government initiated the Atma Nirbhar Package which seemed to put pressure on the financial aspects. 

The debt on India in 2020, the government announced that it would increase its gross market borrowing by more than 50 per cent to Rs 12 lakh crore from Rs 7.8 Crore of the budget estimate. The rising debt is therefore a burden that has raised quite a lot of questions who are doubtful about the meeting of the fiscal deficit target for this year.

Indian Government Debt 

Government liabilities are classified into public debt and other liabilities. Public Debt is the debt contracted against the consolidated fund of India. Public debt is classified into internal and external debt. However, Internal debt mainly consists of both marketable debt and non-marketable debt. Treasury bills are marketable debt. These are issued to state governments and NSSF which are a part of non-marketable internal debt. External debt is money borrowed from outside sources. Other liabilities include PF, Reserve funds and accounts.

How much Debt is Ion the Indian Government?

Do you know how much debt on the Indian Government? The government of India mainly is liable to take loans from both inside and outside the country. The Indian government has a large sum of external data. The external loan is the amount that a country borrows from an outside source and repays it back in the currency in which it borrowed. In 2021, the loan on India was nearly USD570 billion. According to the Reserve Bank of India, India’s loan amount recorded an increase of USD11.5 billion over its total in 2020. The current debt of India is nearly USD543 billion and the GDP ratio rose to 21.1 % this year.

What is Debt to GDP?

A Debt to GDP is a ratio that indicates how much debt a country owes and how much it will have to produce to pay off its debts. It is estimated with the number of years needed to pay back the debt in case the entire GDP is allocated for debt payment. A country’s stable economy is indicated when a country is able to pay off its external dents without external funds, a comfortable limit of debt and has steady economic growth. The country that has problems in paying off states with a high Debt to GDP ratio. In case of this, there might be financial panic. India’s public debt is expected to increase by 17 % due to the outbreak of covid 19. India’s public Debt to GDP was stable by 70% since 1991. Recently, the loss in revenue has caused an economic crisis. According to the IMF, the ratio will be stabilized by 2021. 

Debt on India in 2014 vs 2020

Since 1991, India’s external debt has been about USD85 billion. In 2014, the debt increased to USD446 billion and USD564 billion of GDP in 2019. The Modi Government came to power in 2014. Since then, the external debt has increased by 118 billion dollars. In the last 5 years, the loan in India has been increasing in terms of absolute amount. From Rs. 53.11 lakh crore in 2019, it has increased to Rs. 91.01 lakh crore. The hike of 37.9 lakh crore that is 71 % in absolute terms is very alarming. The table shows the debt and loans on the Indian government:

How Much Loan on India?

The external debt of India is the total debt the country owes. But the question is how much loan on India actually stands? The debtors are the Union government, state governments and India’s loan amount includes amounts from commercial banks, foreign governments, International Monetary Fund or World bank. India’s external debt data is published quarterly. The first two quarters are compiled by the Reserve Bank of India and data for the last two quarters are compiled by the Ministry of Finance. The Indian government publishes an annual status report on the debt which contains a detailed analysis of the country’s external debt position. 

India’s external debt was USD570.0 billion in 2021. The loan on India had increased to USD 11.5 billion by the end of 2020. The external debt to GDP ratio increased to 21.1% during March 2021 from 20.6%. The foreign currencies reserve an increase of over USD576 billion during March 2021 compared to the debt on India in 2020 is USD474 billion. Therefore, the foreign currency reserves as a ratio to external debt improved to 101.1% during the end of March 2021 from 84.9% at end of March 2020. 

Compared to other countries, India’s debt has been estimated. Last year, India’s debt was nearly ₹147 lakh crore. This year, the estimated GDP is nearly ₹194 lakh crore. The Indian government plans to borrow almost ₹12 lakh crore this year.

The emerging economies have a debt of about 40% to 50 % of their GDP. The debt on the Indian Government is nearly 75 % to 80 % of the total GDP. This data states that the debt in India is much higher than that of other countries. Japan and the US are known to be the most debt-ridden countries. Brazil has a debt of 90.5% of its GDP in September 2020. This shows that Brazil has higher debt than us but most of the countries stand below us. Having internal debt is not harmful. The Government of India raises about 80% of its total debt in the country with RBI. Other Indian states have taken about 94 % of total debt from other internal sources. The biggest internal source loans are commercial banks and insurance companies. The loan in India is provided 40% by commercial banks, 24% by insurance companies and 15% by the Reserve Bank of India.

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What were the Reasons for the Debt of the Indian Government?

The most important reason for the debt in India is Bank Recapitalization. The capital was infused in state banks by using bonds in 2017-18. It increased the total central government debt in absolute and percentage of GDP. The Ujwal Discom Assurance Yojna bonds were launched in November 2015. It increased the liabilities of states by supporting the governments. 

The Indian Government holds the printing machine. The US has printed 40% of their initial money. Countries like Argentina have a domestic debt to go down the inflation route. So, the Indian Government needs to worry about the debts on India. The Indian Government has the option to flood the economy with more currency and make its payments. But if the government has too many debts and fulfils this by printing more money, the value of the money will go down.

What is the Comfortable Limit of Debt?

The World Bank estimates that countries that have more than the external debt of 77% of their GDP will face any issue in future. With the increase of external debt after 77 %, the GDP growth rate will be reduced by 1.7 % of that country. According to the records, Japan has too much debt amongst the other countries in the world. Japan has taken loans of around 238 % of GDP. The US comes second by 106%, Brazil’s 68.5 % and the loans in India are 66.8%. 

Conclusion 

The pandemic has unleashed a sudden health emergency that has led to the economic crisis. India managed the first wave but the economy contracted by 8%. The World Bank has been working with the Indian Government to support the economy as well as the health crisis. The World Bank has deployed funds and has approved USD2.75 billion to support the covid crisis. In 2020, the bank had committed USD400 million to the Government of India. The amount was provided to support India’s health sector, protect people from the impact of people and support economic stabilization. Economic stabilization has been provided to smack businesses. As the pandemic continues, India faces challenges. The World Bank has committed to aid in these circumstances.