India's debt-to-GDP to increase to 87.6% in FY21 from 72.2%

India's debt-to-GDP ratio was Rs 146.9 lakh crore (72.2 per cent of GDP) in FY20. Higher level of borrowing this fiscal is likely to increase gross debt further to around Rs 170 lakh crore or 87.6 per cent of GDP.

If we take the new debt as a per cent of old GDP of FY20, then debt as a per cent of GDP would have been 84 per cent. Thus of the total increase in debt-to-GDP ratio of 15.4 per cent, around 3.8 per cent is due to GDP decline while the remaining 11.6 per cent is due to increase in absolute amount of debt.

Within this, external debt is estimated to increase to Rs 6.8 lakh crore (3.5 per cent of GDP). Of the remaining domestic debt, component of State's debt is expected at 27 per cent of GDP. The GDP collapse is pushing up the debt to GDP ratio by at least 4 per cent.

India's debt to GDP ratio has increased gradually from Rs 58.8 lakh crore (67.4 per cent of GDP) in FY12 to Rs 146.9 lakh crore (72.2 per cent of GDP) in FY20. The debt-to-GDP ratio increased by more than 2 per cent of GDP last fiscal owing to easing of nominal GDP growth from double digit to 7.2 per cent.

Higher debt amount would also move the FRBM (Fiscal Responsibility and Budget Management) Act, 2003, target of combined debt to 60 per cent of the GDP by seven years to FY30.

One of the positive developments this year is the falling yields. The weighted average cut off yield for States has so far reduced significantly to 6.49 per cent compared to 7.23 per cent in FY20. For Centre the rate has come down to 4.53 per cent in FY21 from 6.85 per cent in FY20.