Debt risk profile prudent, despite high interest outgo: Finmin

Total liabilities of the general government (both the Centre and states) spiked to 86.3% of the country’s nominal GDP in the pandemic year of FY21, from 73.4% in the previous fiscal.

Debt risk profile prudent, despite high interest outgo: Finmin
The government debt is held predominantly (about 95%) in domestic currency, the ministry said. (Representational image)

Amid a spike in the country’s debt level in the wake of the pandemic, the finance ministry on Monday asserted that the risk profile of the loans “stands out as safe and prudent” on the basis of globally-accepted parameters for debt sustainability.

Total liabilities of the general government (both the Centre and states) spiked to 86.3% of the country’s nominal GDP in the pandemic year of FY21, from 73.4% in the previous fiscal. This is because the Covid outbreak “hugely disrupted projections of the government finances” while the denominator (GDP) contracted, the finance ministry told Parliament. In the last fiscal, however, such liabilities accounted for 82.6%, as the GDP expanded and government finances saw relative improvement.

In a written reply in the Lok Sabha, minister of state for finance Pankaj Chaudhary said the government has initiated a raft of measures to control fiscal deficit and the debt level. These include raising the buoyancy of tax revenue through better compliance, monetisation of assets and improving efficiency and effectiveness of public expenditure.

Thanks to elevated debt levels, the Centre’s interest payment on various bonds, too, rose to Rs 6.23 trillion (3.1% of GDP or 41% of net tax revenue) in FY21, from Rs 5.56 trillion (2.8% of GDP and 41% of net tax revenue) in the previous year. In the last fiscal, the interest payment stood at Rs 7.31 trillion, representing 3.1% of GDP and 40.1% of net tax revenue, the minister said.

The government debt is held predominantly (about 95%) in domestic currency, the ministry said. “Outstanding external debt is financed by multilateral and bilateral agencies at concessional rates. Debt management strategy, which revolves around three broad pillars, mainly low cost, risk mitigation and market development, for government securities has been put in place,” Chaudhary said

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