Insights

India ranks 31st globally in terms of public debt as a percentage of GDP, with debt standing at 80% of GDP in 2025. While this figure might seem high on the surface, the reality is far more nuanced. The structure, drivers, and strategy surrounding India’s debt reveal a story of economic resilience and fiscal prudence.

Understanding India’s Public Debt

Public debt refers to the total amount the central and state governments owe to external or domestic lenders. India’s debt includes:

• Internal borrowings (government securities, treasury bills)

• External debt (loans from foreign institutions)

• State-level liabilities

Despite its size, India’s debt remains largely domestic and rupee-denominated, insulating it from exchange rate risks and sudden capital flight.

Why It’s Still Manageable

Several macroeconomic fundamentals support the sustainability of India’s public debt:

1. Strong Nominal GDP Growth
   India continues to be among the fastest-growing major economies. High nominal growth helps reduce the debt-to-GDP ratio over time by increasing the denominator.

2. Demographic Dividend
   With a young workforce and increasing urbanization, productivity and income levels are rising—driving consumption and tax revenues.

3. Debt Servicing Capacity
   The government has been able to meet interest obligations without excessive borrowing, keeping debt servicing costs under control.

4. Credible Monetary Policy
   Inflation remains within a manageable range, and RBI has been actively involved in supporting growth while keeping bond yields stable.

Government’s Plan: Reduce Debt to 50% by FY2030-31

India’s fiscal roadmap aims to bring down public debt to around 50% of GDP by FY2030-31. This ambitious target rests on three pillars:

1. Fiscal Consolidation
   Gradual reduction in fiscal deficit targets
   Better expenditure prioritization (infrastructure, health, education)

2. Boosting Revenues
   Widening the tax base through GST and direct tax reforms
   Disinvestment and monetization of public assets

3. Efficient Public Sector Management
   Reducing subsidies leakages through DBT
   Rationalizing interest outgo via better debt management

Global Perspective

While 80% might sound high, it's important to compare:

• Japan: >260% of GDP

• USA: ~130%

• France: ~110%

• China: ~80% (similar to India)

Hence, India's position is not alarming when seen in context, especially given the relatively low external debt and high institutional investor confidence.

Final Thoughts

India’s current debt level is a concern to monitor, not to panic over. With strong fundamentals, targeted reforms, and consistent growth, the country is on track to make its public finances more sustainable.

If the government sticks to its fiscal glide path, achieving a 50% debt-to-GDP ratio by 2030-31 is not only feasible—it may become a global case study in macroeconomic discipline.