December , 2023
Analyzing Government Debt: A Brief Overview
23:20 pm

Madhusudhanan S


Debt and monetary financing are fundamental sources to finance fiscal deficits in economies. Public debt, a significant economic indicator, showcases an economy’s health. In recent times, the escalating public debt has garnered considerable global attention, particularly in the United States.

Public debt serves a pivotal role in economic development, funding various governmental aspects, from infrastructure to human capital and prospects. However, when public debt grows excessively, it becomes a substantial burden, as witnessed globally today.

This article delves into the definitions of public debt, its significance, considerations between gross and net debt, and the relevance of central versus state government debt. It examines the status of public debt in India, concluding with insights into the subject.

Defining Public Debt

Public debt, synonymous with government debt, denotes the total outstanding owed by various government levels, financing deficits due to increased spending. Essentially, it represents the entirety owed by the government to creditors, often expressed as a ratio to Gross Domestic Product (GDP).

Debt can be internal (borrowed within the country) or external (borrowed from outside the country). Internal debt pertains to the government owing to domestic lenders, while external debt refers to obligations to foreign lenders.

Importance of Public Debt

Public debt is crucial in bridging budgetary gaps and financing public spending when government income falls short of expenditures. It fills deficits by borrowing money for various developmental purposes and during economic downturns to stimulate private investments.

Gross or Net Debt: Considerations

Gross debt encompasses all liabilities in debt instruments, readily available and inclusive of interest payments, making it a crucial metric to evaluate.

Central Government Debt vs. State Government Debt

The consolidated figure of General Government Debt, comprising Central, State Governments, and UTs with legislature, holds greater significance when assessing a nation’s overall fiscal health.

Current Status of Public Debt

The Status Paper on Public Debt (2021-22) revealed a decline in the General Government Debt ratio from 87.8% to 83.3% of GDP between March 2021 and March 2022. The debt-GDP ratio for States and Union Territories also witnessed a decline from 31.0% to 28.9% during the same period.

The table illustrates the status of General Government Debt over five years, highlighting a decrease in Central Government debt from 61.5% to 59.1% and a drop in State Government and UTs’ debt-GDP ratio from 31.0% to 28.9%.


India appears relatively favourable concerning public debt when compared to economic parameters like growth or savings rates. The declining interest payments to revenue receipts from 29.8% to 26.4% in 2021-22 suggests an improved economic position compared to 2020-21. However, compared to pre-pandemic levels, public debt has risen. Yet, the majority of India’s public debt is at fixed rates, with minimal floating internal debt.

As the economy began opening post-pandemic in 2021-22, it is premature to draw concrete conclusions. Vigilance and effective management of public debt remain imperative to mitigate adverse consequences and ensure sustainable economic growth.

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