Central government debt set to double to ₹185 trillion by FY25 amid fiscal challenges and policy shifts

India's central government debt is projected to escalate to ₹185.27 trillion, or 56.8% of GDP, by the financial year 2024-25 (FY25), up from ₹93.26 trillion, or 49.3% of GDP, in 2018-19, the minister of state for finance Pankaj Chaudhary said in a written reply to the Lok Sabha on Monday.

This projected increase in debt follows a significant rise over the past six years, reflecting a combination of fiscal challenges and strategic economic policies from FY19 to FY25. It underscores the government's efforts to manage economic pressures while addressing critical public needs.

Increasing debt levels highlight the government's growing expenditures on public services, infrastructure projects, and economic stimulus measures. Rising debt often signals a fiscal deficit, where the government's expenditures exceed its revenues. 

In FY20, the debt increased to ₹105.07 trillion, accounting for 52.3% of GDP, as Chaudhary told the Lok Sabha in response to a question from Khalilur Rahaman, Trinamool Congress member.

This increase was largely driven by higher spending on infrastructure and social schemes aimed at stimulating economic growth. The onset of the pandemic exacerbated the situation, pushing the debt to ₹121.86 trillion, or 61.4% of GDP, in FY21. The government resorted to extensive borrowing to fund relief measures and stimulus packages, a necessary response to the economic fallout from the pandemic.

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As the country embarked on recovery efforts post-pandemic, debt levels continued to climb, reaching ₹138.66 trillion, or 58.8% of GDP, in FY22. This slight reduction in the debt-to-GDP ratio was due to a rebound in economic activity, though the absolute debt figure continued its upward trajectory.

Financial year 2022-23 saw the debt increase further to ₹156.13 trillion, or 57.9% of GDP. The government's focus remained on economic recovery, infrastructure development, and welfare programmes, necessitating continued borrowing. For FY24, provisional figures indicate that the debt has reached ₹171.78 trillion, or 58.2% of GDP. This reflects the ongoing efforts to stabilize the economy and invest in growth-oriented projects.

Looking ahead, the budget estimates for FY25 forecast the debt to rise to ₹185.27 trillion, or 56.8% of GDP. This projection aligns with the government's plans to sustain economic growth while managing fiscal deficits.

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According to the International Monetary Fund’s World Economic Outlook for April 2024, India’s GDP reached $3.57 trillion in 2023-24. This substantial economic activity underscores India's growing role as a significant player in the global economy.