What Finance Ministry Said About India’s Combined Government Debt

The finance ministry on Monday revealed details about India’s combined government debt. After a sharp rise in government debt in 2020-21 on account of the revenue shortfall and additional spending requirements due to the pandemic, Finance Minister Nirmala Sitharaman said the general government debt relative to GDP has gradually declined over the last two years to reach around 81 per cent at the end of March 2023.

The finance minister was responding to a question asked by Communist Party of India (CPI) member of Lok Sabha Subbarayan K. He asked whether “it is a fact that the combined Government debt of the country is 86.5 per cent of GDP despite our claim that India is the fastest growing economy in the world?”.

Buoyant revenue collection, the minister added that, rebalancing of spending from revenue to capital expenditure and robust real GDP growth in the post-pandemic years has led to a decline in the Government debt relative to GDP.

As per the National Statistical Office (NSO) estimates, the investment rate (Gross Fixed Capital formation as a per cent of GDP) in the economy, which stood at 34.3 per cent in 2011-12, gradually came down over the next few years, according to the reply.

“This decline was on account of the unsustainable investments made by the corporates from 2004-2012, which later resulted in bad loans, creating high stress in the corporate and banking systems. Consequently, the Gross Non-Performing Assets as a per cent of Gross Advances (GNPA ratio) for the Scheduled Commercial banks went up,” she added.

The ministry has also said the combined efforts of the government and the RBI after 2014-15 reduced the stress in the corporate and banking systems. The measures adopted included transparent identification of non-performing assets through Asset Quality Review, budgetary support to the public sector banks for strengthening their balance sheets, and implementation of the Insolvency and Bankruptcy Code (IBC) to resolve the bad debts. “As a result, the GNPA ratio of banks declined to reach a record low of 3.2 per cent in September 2023,” Ms Sitharaman added.

In addition to strengthening the financial system, the minister said, the government has more than doubled its effective capital expenditure from Rs 6.57 lakh crore in 2020-21 to Rs 13.71 lakh crore and Rs 14.97 lakh crore in 2023-24 and 2024-25, respectively, to crowd in private investments. “Simultaneously, the State Governments have been incentivised to increase their capital spending through measures such as 50-year interest-free capex loans and front-loading of tax devolution instalments. Various other measures, such as reduction of the corporate tax rate, liberalisation of foreign direct investment, and enhancement of ease of doing business, have created supportive conditions for sustained growth in private investment. As a result, the overall investment rate in the economy consolidated at 29.2 per cent of GDP in 2022-23 and has further improved to 29.8 per cent in 2023-24 as per the advance estimates by NSO”.