Crisis Management
India's high pubic debt limits capacity to manage crisis, says finance secy
This story was originally published at 20:43 IST on 2 May 2025
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NEW DELHI – India's elevated public debt, with its high interest payment to tax revenue ratio, will limit the government's capacity to manage a crisis, Finance Secretary Ajay Seth said. The Indian government may have difficulty navigating if a crisis of the scale of COVID-19 hits the economy, Seth said.
"One has to remain committed and deliver on that (debt management) for two reasons, and one of the reasons why credit rating agencies look more cautiously towards India is the elevated debt level," Seth said at Isaac Centre for Public Policy's Growth Conference on Friday. "Our capacity to withstand another crisis of the dimension of say, COVID, is limited at this point of time because the outgo on account of interest as a proportion of tax revenues is fairly large vis--vis, say, other countries like Indonesia."
Global ratings agencies have flagged to the Indian government its high interest payment-to-tax revenue ratio, which they say is a hurdle to India getting an upgrade. The central government's interest payments have risen to make up 32.4% of its revenue receipts in the current fiscal year from 29.0% in FY19.
India's high general government debt-to-GDP ratio is close to 80%. The Budget for 2025-26 (Apr-Mar) has set a glide path to reduce the Centre's debt to 50.0% of GDP within a band of 49-51% by FY31 from 57.1% in FY25. The states also need to work on their finances to bring down India's debt level, Seth said. "There is a fair amount of opaqueness in states' government finances."
Rating agencies Fitch and Moody's have maintained their lowest investment-grade ratings of BBB- and Baa3, respectively, for India for several years now, with a stable outlook. S&P has also rated India BBB-, but upgraded the outlook to positive in 2024.
As rating agencies give a fairly large weight to governance, close to 15%, India and several other developing economies have asked the World Bank to redo its methodology for its World Governance Index or WGI, Seth said. "WGI is survey-based, just opinion. It has to be objective, rather than subjective." End
Reported by Krity Ambey and Sagar Sen
Edited by Saji George Titus
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