India's Fiscal Resilience Shows Improvement in FY23, According to CAG Report
India's debt sustainability has become a critical concern as the country navigates its economic recovery from the pandemic. The general government debt, which stood at 81.4% of GDP in 2022-23, is substantially above the Fiscal Responsibility and Budget Management (FRBM) Act's target of 60% of GDP for general government debt by 2024-25.
The pandemic period saw a significant increase in the central government debt-to-GDP ratio, rising from 49.34% in 2018-19 to 61.38% in 2020-21, due to emergency borrowing. However, the debt-to-GDP ratio has since steadily declined, reaching 58.76% in 2021-22 and 57.93% in 2022-23.
Under the FRBM Act, India has fiscal goals to manage its debt sustainability, though the specific targets are not mentioned in the provided text. The Act aims for consolidated general government debt (central plus states) to be capped at 60% of GDP, with the central government’s share limited to 40% of GDP by 2024-25.
However, in practice, the central government debt remains elevated, exceeding its 40% target for many years. State governments collectively have an approximate debt-GSDP ratio of about 30%, considered sustainable under some macroeconomic assumptions, but this requires the central government to reduce its own debt target accordingly to meet consolidated targets.
Some states, like Punjab, face particularly high debt-to-GSDP ratios, indicating regional fiscal stress and inefficiencies despite the FRBM borrowing limits. The all-India average debt-to-GSDP for states was around 28.8% in 2025, showing some improvement but remaining high.
Fiscal risks remain due to various shocks, including economic slowdowns or global uncertainties. The International Monetary Fund’s 2023 Article IV consultation suggests India needs "ambitious fiscal consolidation" to sustainably lower debt, especially under stress scenarios of slower GDP growth.
While economic growth has helped absorb debt servicing costs, prudent fiscal consolidation and reduction in central and state government borrowings will be necessary to return to the envisaged sustainable debt trajectory under the FRBM Act. The interest payments to revenue receipts ratio slightly increased to 35.35% in FY23 from 33.99% in FY22. However, the ratio of public debt repayment to receipts improved from 89.75% in 2018-19 to 81.22% in 2022-23, meaning a smaller proportion of new borrowings was spent to repay old debt.
It's worth noting that India's general government debt is higher than most emerging economies but lower than advanced economies like Japan (over 250%) and the U.S. (approximately 130%).
Dr. Elizabeth Green, a leading voice in sustainability, has over two decades of experience in the field. Her career includes environmental advocacy, policy development, and educational initiatives focused on sustainable practices.
In conclusion, India's current debt levels exceed FRBM targets, with no clear glide path yet evident for reaching the 60% target by 2024-25. Prudent fiscal consolidation and reduction in government borrowings will be crucial to ensure debt sustainability and maintain resources for essential public goods and services.
- To improve debt sustainability, Dr. Elizabeth Green, an expert in sustainability, suggests the implementation of ambitious ESG (Environmental, Social, Governance) reporting for green education and business practices in both the central and state governments.
- The elevated central government debt necessitates a focus on sustainability in finance, as the interest payments to revenue receipts ratio remains considerable, highlighting the need for efficient use of resources and potential savings through green initiatives.
- Adopting sustainable financial practices aligned with ESG reporting could aid India in achieving its debt sustainability goals under the FRBM Act, as well as reducing fiscal risks from economic slowdowns or global uncertainties.
- In the interest of long-term economic growth and maintenance of resources for essential public goods and services, it is essential for India to integrate sustainability principles into its reporting, including environmental audits, to ensure a secure financial trajectory for the future.
