Debt – India’s Central Liabilities Rise to Rs 214 Lakh Crore

Debt –  The Union Budget for 2026–27 outlines a higher debt burden for the Centre, with total liabilities projected to expand steadily over the coming year.

The Union Government’s financial position has drawn attention following the presentation of the 2026–27 Budget, particularly its updated debt estimates. While discussions around tax reforms and capital expenditure dominated early reactions, official documents reveal that the Centre’s outstanding liabilities are set to climb further in the next fiscal year.

Total Debt Set to Increase by March 2027

According to the Receipt Budget for 2026–27, the Government of India’s combined internal and external liabilities are expected to reach Rs 214.82 lakh crore by the end of March 2027. This marks a significant increase from the revised estimate of Rs 197 lakh crore as of March 2026.

In practical terms, the Centre’s total borrowings are projected to expand by nearly Rs 17.6 lakh crore within a single year. The rise reflects ongoing borrowing requirements to finance public expenditure and development initiatives.

Internal Borrowing Dominates the Debt Profile

A closer look at the composition of liabilities shows that domestic borrowing continues to form the backbone of the government’s debt structure.

By March 31, 2027 (estimated):

• Internal debt and other liabilities: Rs 207,70,868 crore
• External debt: Rs 7,11,182 crore
• Total: Rs 214,82,050 crore

The figures indicate that external debt accounts for only a small fraction of overall liabilities. Most funds are raised from within the country through instruments such as government securities, treasury bills and other market borrowings.

Apart from these, the Centre also carries obligations linked to small savings schemes, provident funds and other deposits, which are recorded separately in the official Statement of Liabilities.

Debt Relative to GDP Shows Marginal Improvement

While the absolute numbers appear large, economists typically assess sustainability by comparing debt to the size of the economy.

In the Fiscal Consolidation section of the Budget, the Centre’s debt-to-GDP ratio is estimated at 55.6 percent for 2026–27. This is slightly lower than the 56.1 percent projected for 2025–26. The government has reiterated its medium-term objective of bringing this ratio closer to 50 percent by 2030.

It is important to note that this percentage reflects only the central government’s borrowings. When state government debt is included, the combined public debt level rises further.

Data compiled using Reserve Bank of India statistics show that general government debt — covering both the Centre and states — stood at 81.92 percent of GDP in 2024. Historically, this combined ratio has averaged about 70 percent since 1980. It reached a high of 89.24 percent during the pandemic year of 2020, while the lowest recorded level was 47.94 percent in 1980.

The apparent difference between the 55–56 percent figure and the roughly 82 percent figure stems from whether state liabilities are included in the calculation.

Why the Debt Ratio Matters

Lower debt levels relative to GDP generally provide greater financial flexibility. When borrowing is contained, interest payments consume a smaller share of revenue, allowing more funds to be directed toward infrastructure, social services and development projects.

Controlled debt also helps maintain investor confidence and stable borrowing costs. It gives policymakers room to respond to unexpected economic shocks without sharply increasing deficits.

Conversely, if debt grows more rapidly than the economy, fiscal pressure can intensify. A larger portion of government income may be used to service interest payments, potentially limiting resources available for new investments. Higher debt can also influence market sentiment and borrowing costs.

In India’s case, the predominance of domestic debt reduces exposure to external currency risks. However, the overall size and trajectory of liabilities remain important for long-term macroeconomic stability.

Borrowing as a Development Tool

Government borrowing is not inherently negative, particularly for a developing economy undertaking large-scale infrastructure expansion. India continues to invest in highways, rail corridors, ports, digital networks, renewable energy and urban infrastructure. Such projects demand substantial upfront funding but aim to generate productivity gains over time.

Relying solely on current revenues to finance these investments could slow economic growth. Borrowing allows the government to spread costs over several years while reaping future economic benefits.

The critical factor lies in the quality of spending. Loans directed toward productive assets tend to strengthen growth potential, whereas excessive borrowing for routine expenditure can strain public finances.

The Budget projections show that central government debt will cross Rs 214 lakh crore by March 2027. As a share of GDP, the Centre’s ratio is projected at around 55–56 percent, while combined public debt including states remains significantly higher.

The coming years will determine whether fiscal consolidation efforts succeed in gradually lowering the debt burden. Sustained economic expansion and prudent deficit management will play a key role in shaping that outcome.