Lok Sabha Question No. 24 (STARRED), answered on 2024-02-05
Subject: Impact of Government's Debt on Economy
Ministry: FINANCE
Asked by: K. Subbarayan

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## STARRED QUESTION NO.*24

TO BE ANSWERED ON05.02.2024

## Impact of Government's Debt on Economy

## *24. SHRI SUBBARAYAN K:

Will the Minister of FINANCE

be pleased to state:

- a) Whether it is a fact that the combined Government debt of the country is 86.5 per cent of GDP despite our claim that India is the fastest growing economy in the world;
- b) if so, the details thereof and the reaction of the Government thereto;
- c) whether  the  high  debt  level  of  the  Government  has  resulted  in  low  level  of  total investments in the economy which is 32 per cent of GDP in 2022-23compared to 38-39 per cent in 2011-12;
- d) if so, the details thereof and the reaction of the Government thereto; and
- e) the  measures  taken/being  taken  by  the  Government  for  debt  reduction  and  sustained public and private investment in the economy?

## ANSWER

THE FINANCE MINISTER (SMT NIRMALA SITHARAMAN)

(a) to (e):A statement is laid on the Table of the House.

******

## Statement referred to in reply to the Lok Sabha starred question no. 24 on 'Impact of Government's  Debt  on  Economy'  raised  by  Shri  Subbarayan  K  due  for  answer  on 05.02.2024

(a)  and  (b): After  a  sharp  rise  in  government  debt  in  2020-21  on  account  of  the  revenue shortfall and additional spending requirements due to the pandemic, the general government debt relative to GDP has gradually declined over the last two years to reach around 81 per cent at the end of March 2023 (Prov.). Buoyant revenue collection, rebalancing of spending from revenue to capital expenditure and robust real GDP growth in the post-pandemic years has led to a decline in the Government debt relative to GDP.

(c) to (e): As per the National Statistical Office (NSO) estimates, the investment rate (Gross Fixed Capital formation as a per cent of GDP) in the economy, which stood at 34.3 per cent in 2011-12, gradually came down over the next few years. This decline was on account of the unsustainable investments made by the corporates from 2004-2012, which later resulted in bad loans, creating high stress in the corporate and banking systems. Consequently, the Gross Non-Performing  Assets  as  a  per  cent  of  Gross  Advances  (GNPA  ratio)  for  the  Scheduled Commercial banks went up.

The combined efforts of the Government and the RBI after 2014-15 reduced the stress in the corporate and banking systems. The measures adopted included transparent identification of non-performing assets through Asset Quality Review, budgetary support to the public sector banks  for  strengthening  their  balance  sheets,  and  implementation  of  the  Insolvency  and Bankruptcy  Code  (IBC)  to  resolve  the  bad  debts.  As  a  result,  the  GNPA  ratio  of  banks declined to reach a record low of 3.2 per cent in September 2023.

In addition to strengthening the financial system, the Government has more than doubled its effective capital expenditure from Rs 6.57 lakh crore in 2020-21 to Rs 13.71 lakh crore and Rs  14.97  lakh  crore  in  2023-24  (BE)  and  2024-25  (BE),  respectively,  to  crowd  in  private investments. Simultaneously, the State Governments have been incentivised to increase their capital spending through measures such as 50-year interest-free capex loans and front-loading of tax devolution instalments. Various other measures, such as reduction of the corporate tax rate, liberalisation of foreign direct investment, and enhancement of ease of doing business, have created supportive conditions for sustained growth in private investment. As a result, the overall investment rate in the economy consolidated at 29.2 per cent of GDP in 2022-23 and has further improved to 29.8 per cent in 2023-24 as per the advance estimates by NSO.

The emphasis of the Government on increasing capital expenditure will not only boost the investments but also return a higher GDP growth to lower the debt burden. Increasing the buoyancy of tax revenue through improved compliance, enhancing efficiency and effectiveness of public expenditure, commitment to reduce fiscal deficit to below 4.5 per cent of  GDP  by  2025-26,  and  augmenting  the  productive  efficiency  of  the  economy  are  some other  important  measures  taken  by  the  Government  to  bring  down  the  debt  burden  and strengthen the economy.