The elevated levels of India’s fiscal deficit and public debt have been a matter of concern for a long time in India. Even before the COVID-19 pandemic, debt levels were among the highest in the developing world and emerging market economies. The pandemic pushed the envelope further and relative to GDP, the fiscal deficit in 2020-21 increased to 13.3% and the aggregate public debt to 89.6%. As the economy recovered after the pandemic, the deficit and debt ratios have receded to 8.9% and 85.7%, respectively.
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The projections show that even without any serious disruptions to the economy, the debt level is unlikely to return to the pre-pandemic trajectory in the medium term. With elections to a number of States scheduled in 2023 and with the general election for 2024, the electoral budget cycle could push the debt ratio further. And, there can be serious questions about its sustainability unless targeted interventions are made to reduce the debt burden, which may not be politically easy with elections on the horizon.
