2 minEconomic Concept
Economic Concept

Public Debt

What is Public Debt?

Public Debt refers to the total outstanding financial liabilities of the central and state governments. It represents the accumulated borrowings of the government to finance its expenditure when revenues are insufficient.

Historical Background

India's public debt management has evolved significantly, especially after the 1991 economic reforms. The Fiscal Responsibility and Budget Management (FRBM) Act 2003 was a landmark step to institutionalize fiscal discipline and manage debt sustainably. Post-COVID-19, global and domestic public debt levels have seen a substantial increase.

Key Points

8 points
  • 1.

    Comprises internal debt (borrowings from domestic sources like banks, individuals, RBI) and external debt (borrowings from foreign governments, international financial institutions).

  • 2.

    Measured as a percentage of GDP (Debt-to-GDP ratio) to assess sustainability; a higher ratio indicates greater fiscal risk.

  • 3.

    Financed through issuance of Government Securities (G-Secs), treasury bills, and other instruments.

  • 4.

    High public debt can lead to higher interest payments, crowding out of private investment, and potential inflationary pressures.

  • 5.

    FRBM Act aims to keep public debt at sustainable levels, though targets have been revised.

  • 6.

    Article 292 of the Constitution empowers the Union government to borrow, while Article 293 deals with state government borrowings.

  • 7.

    Debt sustainability depends on the country's economic growth rate, interest rates, and fiscal capacity.

  • 8.

    Contingent liabilities potential future obligations like guarantees given by the government, are also a concern.

Visual Insights

Recent Developments

5 developments
→

India's public debt-to-GDP ratio increased significantly post-COVID-19 pandemic, reaching over 90% for general government debt.

→

Government is focusing on fiscal consolidation and reducing the debt burden through increased revenue collection and rationalized expenditure.

→

Debate on the optimal level of debt for a developing economy like India, balancing growth needs with fiscal prudence.

→

Increased focus on capital expenditure to boost growth and improve debt-carrying capacity.

→

States' debt levels are also a concern, with some states facing high debt-to-GSDP ratios.

This Concept in News

1 topics

Priyanka Gandhi releases 'chargesheet' against Assam government, alleging corruption

20 Feb 2026

The news highlights the importance of responsible public debt management. (1) It demonstrates how allegations of corruption and misuse of funds can raise concerns about a government's ability to repay its debts. (2) If the Assam government has indeed prioritized "freebies" over productive investments, it challenges the principle of using public debt for long-term economic growth. (3) The news reveals that public debt can become a political issue, with opposition parties using it to criticize the ruling government. (4) The implications of this news are that governments need to be transparent and accountable in their borrowing and spending decisions to maintain public trust and ensure debt sustainability. (5) Understanding public debt is crucial for analyzing this news because it allows us to assess the potential economic consequences of the alleged actions and evaluate the government's fiscal policies.

Source Topic

Boosting Global Investment: Ex-Finance Panel Head Advocates 'General Government' Focus

Economy

UPSC Relevance

Crucial for UPSC GS Paper 3 (Economic Development), frequently tested in Prelims (concepts, ratios) and Mains (fiscal policy, challenges). Understanding public debt is essential for analyzing government finances, macroeconomic stability, and policy implications.

India's General Government Public Debt-to-GDP Ratio (2015-2025)

This chart tracks India's General Government (Centre + States) Public Debt as a percentage of GDP over a decade, highlighting its trajectory, especially post-pandemic, and its relation to the N.K. Singh Committee's recommended target.

This Concept in News

1 news topics

1

Priyanka Gandhi releases 'chargesheet' against Assam government, alleging corruption

20 February 2026

The news highlights the importance of responsible public debt management. (1) It demonstrates how allegations of corruption and misuse of funds can raise concerns about a government's ability to repay its debts. (2) If the Assam government has indeed prioritized "freebies" over productive investments, it challenges the principle of using public debt for long-term economic growth. (3) The news reveals that public debt can become a political issue, with opposition parties using it to criticize the ruling government. (4) The implications of this news are that governments need to be transparent and accountable in their borrowing and spending decisions to maintain public trust and ensure debt sustainability. (5) Understanding public debt is crucial for analyzing this news because it allows us to assess the potential economic consequences of the alleged actions and evaluate the government's fiscal policies.