Outstanding Liabilities of the Central Government Percentage of GDP from 2016 to 2024

In the pre-pandemic period (2016-17 to 2018-19), the government maintained remarkable stability in its liability-to-GDP ratio, hovering around 48%. This stability reflected a careful balance between borrowing needs and economic growth, with total outstanding liabilities actually showing a marginal decline from 48.3% to 48.1% of GDP. During this period, internal liabilities remained steady at about 46.7% of GDP, while external debt maintained a conservative level of approximately 1.5% of GDP, demonstrating India’s traditional preference for domestic borrowing. The year 2019-20 marked the beginning of a shift, with total liabilities increasing to 50.9% of GDP. This uptick signalled the early impact of economic headwinds, but the real inflection point came in 2020-21 during the COVID-19 pandemic. The total liabilities jumped dramatically to 61% of GDP – the highest level in this period. To understand this spike, consider that internal liabilities surged to 59% of GDP, with market borrowings alone reaching 36% of GDP. This sharp increase reflected the government’s necessary fiscal response to the pandemic, including increased spending on healthcare, social welfare, and economic stimulus measures.

The post-pandemic period shows a gradual process of fiscal consolidation. The liability-to-GDP ratio has been steadily declining from its peak of 61% in 2020-21 to an estimated 57.1% in 2023-24. This improvement can be attributed to both economic recovery (which increases the GDP denominator) and more measured borrowing. However, it’s worth noting that we haven’t returned to pre-pandemic levels, suggesting the lasting impact of COVID-19 on public finances. An interesting structural change appears in the composition of internal liabilities. While market borrowings have remained significant (34.7% of GDP in 2023-24), other internal liabilities have declined from 9.5% in 2016-17 to 5.7% in 2023-24. This shift suggests a more market-oriented approach to government borrowing, possibly benefiting from improved debt market efficiency.

The external debt component has remained remarkably stable throughout this period, ranging between 1.4% to 2% of GDP, with the slight increase during the pandemic years now moderating back to 1.8%. This consistently low level of external debt reduces the government’s exposure to exchange rate risks and external market volatility. Looking at these trends holistically, they reflect a government balancing multiple objectives: maintaining fiscal support during crises, ensuring debt sustainability, and gradually returning to a more sustainable debt path. The current trajectory suggests a deliberate strategy of fiscal consolidation while keeping enough flexibility to support economic growth and development needs. This balance will be crucial as India navigates global economic uncertainties while pursuing its development goals.