India’s Mounting Debt Crisis: Is the World’s Fastest-Growing Economy Heading for a Fiscal Storm?
Introduction:
India — often hailed as the world’s fastest-growing major economy — is quietly battling a financial storm beneath the surface.
While GDP numbers look impressive, India’s public debt has surged past ₹183 lakh crore, nearly 81% of its GDP. The question haunting economists now: Is India heading toward a debt crisis?
1. The Scale of India’s Debt
India’s debt-to-GDP ratio stands far above the recommended 60% limit set by the FRBM (Fiscal Responsibility and Budget Management) Act.
-
Central Government Debt: ~₹155 lakh crore
-
State Government Debt: ~₹28 lakh crore
-
Total Public Debt: Over ₹183 lakh crore (and rising)
The problem isn’t just the amount — it’s how fast it’s growing. The fiscal deficit remains above 5.8%, far from the government’s long-term target of 3%.
2. Why India Is Borrowing So Aggressively
India’s debt expansion is driven by multiple factors:
-
🏗️ Massive infrastructure projects — highways, defense, and digital expansion.
-
💸 Welfare subsidies — free food schemes, rural employment (MGNREGA), and state loan waivers.
-
🌍 Global shocks — COVID-19 recovery, oil price volatility, and wars in Ukraine and the Middle East.
While these borrowings fuel short-term growth, they risk creating long-term repayment pressure.
3. The Real Danger: Interest Burden
Interest payments now consume nearly 39% of India’s annual revenue, meaning almost 4 out of every 10 rupees the government earns go to service old loans.
That limits spending on healthcare, education, and defense modernization — areas critical for sustainable growth.
4. How the RBI Is Managing the Situation
The Reserve Bank of India (RBI) is walking a tightrope:
-
It’s keeping inflation under control (below 5.5%).
-
But it also needs to keep borrowing costs low for the government.
A sharp rise in bond yields could push India into a liquidity crunch — similar to what Sri Lanka and Pakistan faced in recent years.
5. Is India Heading Toward a Crisis?
Not yet — but the signs are worrying.
India has strong forex reserves (~$640 billion) and a robust tax base. However, if global interest rates stay high and revenue growth slows, the debt burden could become unmanageable within the next decade.
Economists warn that India must shift focus from borrow-and-spend to invest-and-grow.
That means:
-
Reducing subsidies gradually.
-
Increasing exports and private investments.
-
Enforcing strict fiscal discipline across states.
6. The Bottom Line
India’s economic engine is still powerful — but it’s running on borrowed fuel.
The government must act now to prevent today’s debt from becoming tomorrow’s default.
Sustained growth depends not just on big spending, but on responsible fiscal management and long-term productivity.
No comments:
Post a Comment