Many people may not know that there is a National Debt Clock of India, which gives second-by-second details of the overall position of India’s debt. At 11 am on August 19, when I started writing this article, the clock’s readings were as follows:

National debt of India: a mind-boggling figure of Rs 57,021,582,965,509
Interest per year: Yet another mind-boggling figure of Rs 3,631,886,752,695
Interest per second: Rs 115,166
Debt per citizen: Rs 44,032
Debt as percentage of GDP: 41.66%
GDP: Rs 136, 889,344,275,900
Population: 1,295,000,000

Now, the comptroller and auditor general (CAG) of India has come out with its report on this subject (Report No. 16 of 2016, Union Ministry of Finance, Public Debt Management, Performance Audit, covering the period from 2009-10 to 2014-15, submitted to parliament on July 26). It reveals some very interesting facts. This article is intended to highlight these facts and bring them to public notice.

The famous aphorism, “Neither a borrower nor a lender be”, from Shakespeare’s play ‘Hamlet’ may no doubt be a wise saying to be followed by individuals, but for a developing country like India, to provide various social benefits to the people, large financial resources are needed, resulting in excess of expenditure over non-debt receipts, which is termed as fiscal deficit and is sought to be plugged by borrowing, which adds to the country’s outstanding debt. The shortfall is met either by internal or external borrowing, contracted on the security of the Consolidated Fund of India, or by the use of surplus fund in the Public Account, in the budget, internal debt and external debt; these are together referred to as ‘public debt’.

The public debt portfolio is often the largest financial portfolio in the country and can have a far-reaching impact on financial stability. Public debt, while giving an opportunity to the country to fuel economic growth, also places onus on the country for being responsible in proper utilisation of the borrowed funds. Borrowing for this purpose, when not justified by a national need, could be inconsistent with sustainable economic policy. There is also the implied consequence of burdening future generations with such mounting debts.

The total outstanding public debt of India as on March 31, 2015 was Rs 51,04,675 crore of which Rs 47,38,291 crore (92.82 percent) was internal debt and Rs 3,66,384 crore (7.18 percent) was external debt. Statistically speaking, while the total debt liability (internal + external + other liabilities) as of 2011-12 was Rs 41,51,284 crore, at current rates, by 2014-15 it was Rs 57,75,685 crore, at current rates, and constituted an average of around 46 percent of the GDP of the country, over the period from 2011-12 to 2014-15.

An analysis of the servicing of the debts (interest payment + repayment of principal) showed that in respect of short-term internal debt, more than 97 percent of the total short-term debt receipts in each of the six years from 2009-10 to 2014-15 was utilised for servicing of the debts. In the case of long-term internal debt, the corresponding percentage ranged from 58 percent to 77 percent, while in case of external debt, it ranged from 42 percent to 87 percent during the same period. In particular during 2014-15, 77 percent of the long-term internal borrowings and 73 percent of the external borrowing were utilised for debt servicing, implying that a larger percentage of debt was being used for debt servicing, which in turn meant lower percentage of debt was available for meeting developmental expenditure, to promote growth, which is one of the principal justifications for resorting to borrowing.

In the last few years, several countries across the world have faced public debt crisis. Moreover, the frequency and severity of debt crises across the world and the consequent adverse impact on managing of public finances, reinforces the need for promoting responsible lending and borrowing practices.

More importantly, when external loans are taken there should be a proper planning for their drawl and timely utilisation. If this is not done the government of India becomes liable to pay what is known as commitment charges on undrawn balance of external loan, on principal amounts rescheduled for drawl on later dates. During the period from 2009-10 to 2014-15, commitment charges to the extent of Rs 602.66 crore were paid on this account. The year-wise total undrawn balance (loans) from various sources and payment of commitment charges are shown in the accompanying table.

The final conclusions of the CAG report show that:

• The legal framework for debt management did not define the term public debt
• The legal framework did not indicate clearly debt management objectives and borrowing purposes; and also did not provide for formulation of a debt management strategy
• The minutes of the meetings of the Screening Committee did not indicate whether knowledge transfer, technology transfer and best practices transfer from international experience were considered, while approving projects for external assistance in 60 of the 82 approved projects
• The public debt information systems used for internal debt and external debt did not have provisions for analytical functions
• There was no centralised database of all internal and external liabilities of the government. Further, discrepancies were noticed in the internal debt figures published by various divisions of the department of economic affairs and RBI.

The executive often has a tendency to belittle the findings of audit or not to take them seriously. In fact, instances are not lacking where valid criticism by audit of the acts of omission and commission by the executive, which have resulted in huge losses to the exchequer, are cited as alibis for promoting policy paralysis. Other constitutional bodies, such as the CVC, the high courts and the supreme court and the information commissions, have been clubbed together as ‘5Cs’ as the reason for inhibiting the decision-making process by senior government officials!

There being no machinery other than parliament and the public accounts committee to go into the CAG reports for taking remedial action, mostly the findings remain on paper and in due course forgotten. This is most unfortunate. There is, therefore, need for building public opinion and bring on board, other opinion makers and the media to bring widespread awareness of these shortcomings and build pressure on the government to take prompt remedial action. It is hoped that the conclusions and recommendations of the CAG on public debt management receives the attention of the ministry of finance for taking prompt remedial action.


Krishnan, IAAS (retired), served as additional secretary, ministry of finance.


(The article appears in the September 1-15, 2016 issue of Governance Now)