How big is India's debt and should it be a worry?

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How big is India's debt and should it be a worry?
The Indian government plans to borrow another ₹ 12 lakh crore this yearBCCL
  • India’s debt levels are set to rise this year due to an increase in borrowing to deal with the COVID-19 pandemic.
  • While some believe that high government debt is a reason to worry, others believe India’s growth in the coming year will balance the scales.
  • Here’s what the Indian government’s debt currently looks like and how it could affect you.
The COVID-19 pandemic has led to an increase in debt not only for India but for most countries around the world.

How much debt does India have compared to other countries?
Last year, India’s debt was around ₹147 lakh crore against this year’s estimated GDP of ₹194 lakh crore . This year, the government plans to borrow another ₹12 lakh crore.

How big is India's debt and should it be a worry?
BI India

Most of the emerging economies have government debt that is around 40% to 50% of their GDP. Compared to that our debt is around 75% to 80% of our GDP, which used to be on the higher side.
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There are countries — Brazil, for example, with debt at 90.5% of its GDP as of September 2020 — which may have higher debt than us. But most of the peer countries stand below us.

How big is India's debt and should it be a worry?
BI India

Advanced countries like the US and Japan may have even higher debt levels. But Apoorva Javadekar, assistant professor of finance at the Indian School of Business (ISB), believes that India should not compare itself to these economies because their repayment capacity is also much higher than India.

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“We’ve gone from every ₹70 on ₹100 of earnings to around ₹80. If you think of the economy as a ₹250 lakh crore, you can multiply and understand the amount of debt that we have,” he told Business Insider. “In the numbers game, India is still on the higher side though.”

Q3 2019 ($ trillions)Q3 2020 ($ trillions)% Increase
Developed markets$181.8$196.38.0%
Emerging markets$70.9$76.47.7%
Global total$252.7$272.77.9%
Source: IIF, BIS, IMF, Haver, National Sources

Why should I worry about government debt?
“Why would anyone investing in stock markets fear to invest money in a company which is debt ridden? Simply for the fact, when the next crisis comes that company might be wiped out… Similarly for countries, for international investors the debt is going to show up in the sovereign credit ratings,” said Javadekar.

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How big is India's debt and should it be a worry?
BI India

“It’s the government who holds the printing machine. In the US, they have printed 40% of their initial money stock. A lot of countries, like Argentina, who have domestic debt go down the inflation route. And, that’s another reason we should worry about debt,” explained Shekhar Tomar, an assistant professor of Economics and Public Policy at ISB.

The Indian government also has the option to flood the economy with more rupees to make its payments. If the government has too much debt and it fulfills this debt by printing more money, then the value of that money goes down.

“Right now we’re spending more to support the poor people but it goes beyond a certain limit, the same poor people are going to pay back in 10 years,” explained Tomar.
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The latest budget plans to borrow a lot more. Is that a problem?
If the economy grows, debt itself is not the problem.India’s Finance Minister Nirmala Sitharaman believes the economy will grow.

And, so does Shashwat Alok, an assistant professor of finance at ISB. “My estimate is that we’re going to grow at a rate faster than the rest of the world. Given that, we can sustain a higher debt level than the rest of the world for the foreseeable future,” he said.

Borrowing more money means that you’ll have to pay it back at some point of time. And, this isn’t the first time that India has found itself in this situation.
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“During the Asian crisis we went from 67 to 83% when our growth rate was 3.9%. The economy was nothing. Then we had good growth and we came back to 66%,” Prasanna Tantri, the executive director at the Centre for Analytical Finance at ISB told Business Insider.

However, if there are unforeseen circumstances like another pandemic or a war have the potential in the near term, the growth may take a hit and that is when debt will become a problem. But most experts believe the odds of another shock are low.

“I don’t think the finance minister cares about taking on too much debt, but at the same time they've been more fiscally prudent than what I would’ve expected. If situations go south, I think as an economy we still have the capacity to borrow more,” he told Business Insider.
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