India’s fiscal prospects continue to improve, as the Comptroller and Auditor General (CAG) has reported on the evolving debt sustainability for 2023. In its Report No. 3 of 2025, the CAG evaluated key fiscal indicators under the FRBM Act and found an improved capacity to service debt, as well as an overall improvement in accuracy, despite increased interest payments. Once again, they raised concerns about the reliability of the underlying data. As India charts a path toward long-term financial resilience, India’s debt sustainability is emerging as a key focus in public finance management.
What Is Debt Sustainability and Why Does It Matter for India?
Debt sustainability is defined as the ability of a government to fulfil its debt obligations without default or reliance on outside assistance while ensuring that the resources required to provide for essential public goods and services, including health, education, and infrastructure, are available.
For India, a fast-growing economy struggling with high levels of development spending, sustaining debt levels is vital because we need to maintain investor confidence to keep interest rates low and allow the government to access funds to support growth-oriented efforts. Unsustainable debt levels can increase the cost of borrowing and crowd out funding for essential services.
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India’s Debt Sustainability: What Do the Numbers Say?
The debt-to-GDP ratio is a key indicator of a country’s fiscal health. The CAG report indicates that India’s central government debt-to-GDP ratio increased significantly during the pandemic period, from 49.34% in 2018-19 to 61.38% in 2020-21, primarily due to emergency borrowing. The debt-to-GDP ratio has steadily declined:
- 58.76% in 2021-22
- 57.93% in 2022-23
This downward trend is a strong signal of improved debt management and economic recovery, contributing to India’s Debt Sustainability goals.
| Fiscal Year | Central Government Debt-to-GDP Ratio (%) |
|---|---|
| 2018-19 | 49.34 |
| 2020-21 | 61.38 |
| 2021-22 | 58.76 |
| 2022-23 | 57.93 |
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What Did the CAG Report Say About FY23?
The 2025 Report No. 3 was laid in Parliament on April 4 and confirms good debt sustainability in FY23. The lower debt-to-GDP ratio indicates a lighter debt burden on the entire economy’s productive capacity. The other important measure, the ratio of public debt repayment to receipts, improved by declining from 89.75% in 2018-19 to 81.22% in 2022-23. This means that a smaller proportion of new borrowings was being spent to repay old debt, making more resources available for capital investment in the economy and genuine welfare programs.
However, the interest payments to revenue receipts ratio slightly increased to 35.35% in FY23 from 33.99% in FY22, though it remains below the pandemic peak of 38.66% in FY21.
| Fiscal Year | Interest Payments to Revenue Receipts Ratio (%) |
|---|---|
| 2020-21 | 38.66 |
| 2021-22 | 33.99 |
| 2022-23 | 35.35 |
What Are the Targets Under the FRBM Framework?
The FRBM Act sets fiscal goals:
- Central government debt: 40% of GDP by 2024-25
- General government debt: 60% of GDP
- Fiscal deficit: 3% of GDP
Due to the pandemic, these targets were revised. The 2021-22 Budget committed to reducing the fiscal deficit to below 4.5% by 2025-26. As of FY23, the central government’s debt-to-GDP ratio of 57.93% exceeds the 40% target, and general government debt, estimated at 81.68% in 2022, remains significantly above the 60% threshold. Continued fiscal consolidation is vital to ensuring India’s debt sustainability aligns with its long-term macroeconomic objectives.
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FAQ
1. How Is Central Government Debt Different from General Government Debt?
Central government debt refers to the liabilities of the Union government alone, whereas general government debt encompasses the liabilities of both the central and state governments. In 2022, general government debt stood at 81.68%, compared to the central government’s 57.93% in FY23.
2. How Does India Compare Globally?
India’s general government debt is higher than that of most emerging economies but lower than that of advanced economies, such as Japan (over 250%) and the U.S. (approximately 130%). For developing economies, staying within sustainable debt limits is crucial to avoid market volatility and maintain India’s debt sustainability as seen in India.
3. What Is the Government Doing to Manage Debt?
Efforts include increasing tax revenue, rationalizing expenditure, and investing in infrastructure to spur GDP growth. Adherence to FRBM goals and improved debt service efficiency support a healthier fiscal outlook.
4. What If the Debt-to-GDP Ratio Rises Again?
An increasing ratio could lead to higher borrowing costs, weaken investor sentiment, and prompt credit downgrades. It would also reduce fiscal space for public investment, making the economy more susceptible to global shocks.
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