Public Debt

Story hook

On 30 June 2024, the Reserve Bank of India's quarterly debt-management report carried a number that has not appeared since the early 2000s: India's general government debt — Centre plus all States — had reached ₹208.61 lakh crore, or 80.5% of GDP. Add another ₹52 lakh crore of off-Budget borrowings by PSUs (NHAI, FCI, NTPC, GAIL, others), and the broader public sector debt crosses 85% of GDP.

Outside India, this would set off alarm bells. Brazil's public debt is 87% of GDP. Italy's is 142%. Japan's is 250%. Each of those countries faces a different combination of risks — currency weakness, rating downgrades, refinancing crises. India has so far avoided those headlines because 94% of its public debt is domestic (in rupees), the maturity profile is long (average 12+ years), and debt servicing is comfortably below 30% of revenue.

But the calculus is shifting. Foreign Portfolio Investors, who since the JP Morgan Bond Index inclusion in June 2024 can buy Indian government bonds passively, are now ~3% of the outstanding G-sec market — and projected to be 8-10% by 2026. External Commercial Borrowings (ECBs) by Indian corporates crossed $190 billion outstanding. Public-sector capex is being funded through 50-year interest-free loans to States that don't appear in the Centre's headline deficit. The architecture of how India borrows — and from whom — is being quietly rewritten.

Why this matters for UPSC

Public Debt falls under GS-III Indian Economy ("Government Budgeting" and "public finance"). Prelims tests definitions (public debt vs total liabilities, internal vs external) and sustainability indicators at least once every 2 years. Mains has asked debt sustainability, ECBs, and fiscal sustainability questions in 2018, 2020, 2022. Interview boards test the candidate's grasp of NK Singh's debt anchor (60% of GDP), the interest payments burden, and the role of FPI in G-secs.