The government borrowed heavily in FY21 to support the Covid-19 revenue shock. This could bring India’s bloated debt to almost 90% of gross domestic product. But as long-term debt increases, interest payments increase in future years. In FY21 through November, interest expense accounted for nearly half of revenue.
But even before Covid-19 hit the economy, the government was borrowing at a rate very close to nominal GDP growth. At the end of FY21, economic growth would still likely be below the corporate borrowing rate. The sooner nominal GDP growth outpaces long-term interest rates in the economy, the better.
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First published: Thursday, January 14, 2021. 5:32 PM IST
