India’s Debt in Global Context: GDP, Income Growth, & Interest Costs

India’s fiscal story cannot be understood in isolation.

Debt, deficits, and interest costs only make sense when viewed relative to economic size, growth capacity, and financing conditions. This blog places India’s numbers alongside major global economies to answer three questions:

1. How does India’s debt-to-GDP ratio compare globally?

2. How does GDP per capita growth change the way we read that debt?

3. What really matters more, the amount of debt, or the cost of carrying it?

   
   

1. Debt-to-GDP: Large, But Not an Outlier

At first glance, India’s gross government debt, as a percentage of GDP, appears high. But global comparison immediately adds nuance. When placed alongside advanced and large economies:

• Japan operates with debt well above 200% of GDP

• The United States and United Kingdom are comfortably above 100%

• China’s debt ratio has risen sharply over the last two decades

Against this backdrop, India’s debt ratio, broadly in the 70-90% range over time, does not stand out as extreme. More importantly, India’s debt ratio has not compounded aggressively over the last 25 years. The long-term CAGR of debt-to-GDP is effectively flat, suggesting that while absolute debt has grown, it has largely expanded in line with the economy itself.

Borrowing has been used to expand capacity, not to substitute for growth. Debt levels matter, but trajectory matters more.

2. GDP Per Capita Growth: The Missing Context in Debt Discussions

Debt sustainability cannot be assessed without understanding how fast incomes are rising. On this measure, India stands out positively. Over the last 25 years:

• India has recorded one of the highest GDP per capita growth rates globally

• China is the only large economy that has grown faster over the same period

• Most advanced economies have seen far slower per capita income growth

This matters because faster income growth:

• Expands the tax base

• Improves the government’s capacity to service debt

• Reduces the real burden of past borrowing over time

Singapore often appears alongside high-growth economies in such comparisons, but it operates under a fundamentally different economic and fiscal structure. Unlike India or China, Singapore is a small, highly open financial hub. Its growth model is closely tied to global capital flows, trade intermediation, and asset management

The government’s balance sheet is designed around asset accumulation as much as fiscal spending. As a result, while Singapore’s GDP per capita levels and growth are impressive, its experience is not directly comparable to large, population-driven economies like India.

3. Interest as a Percentage of GDP: The Real Stress Test. Cost Matters More Than Size.

Interest payments as a percentage of GDP are often a better indicator of fiscal stress than debt levels alone. This metric captures not just how much a country owes, but how expensive it is to carry that debt relative to the size of its economy.

Across countries, three factors largely determine this outcome:

• The average interest rate at which governments borrow

• The maturity and structure of outstanding debt

• The pace of nominal GDP growth

Why Advanced Economies Look Comfortable

Countries like the United States and several European economies carry high debt ratios, yet report moderate interest costs as a share of GDP.

This is primarily because:

• They borrow at very low nominal and real interest rates

• Their debt is issued over long maturities

• Inflation and nominal GDP growth help dilute real debt burdens

In effect, the cost of debt grows more slowly than the economy itself.

The Singapore Exception

Singapore stands apart for structural reasons:

• Government borrowing does not fund budget deficits

• Proceeds from securities issuance are invested through sovereign investment entities

• Returns on these investments offset interest obligations

As a result, Singapore reports near-zero net interest costs, even with substantial gross debt. This reflects institutional design, not just fiscal prudence.

Why India’s Interest-to-GDP Ratio Is Higher

India’s interest payments as a percentage of GDP are higher than many peers, and this is neither accidental nor inherently negative. It reflects structural characteristics of a developing economy.

Several factors explain this:

1. Higher Real Interest Rates

India borrows in an environment where:

• Inflation risk is structurally higher

• Real interest rates remain positive to anchor savings and stability

• This naturally raises borrowing costs compared to advanced economies.

2. Limited Access to Ultra-Low Cost Capital

Unlike reserve currency issuers:

• India cannot borrow globally at near-zero rates

• Most debt is domestically funded, at market-determined yields

• This improves resilience, but increases cost.

3. Composition of Borrowing

A significant share of India’s borrowing finances:

• Long-term infrastructure

• Social and economic assets

• Transfers to states

These investments yield returns indirectly through growth and taxation, not through financial income that can offset interest costs.

4. Nominal GDP Growth Is doing the heavy lifting, but gradually

While India’s GDP growth is strong, it takes time for revenue expansion, formalisation gains and productivity improvements to fully neutralise the cost of debt. The declining trend in interest payments as a share of government revenue, highlighted earlier in this series, suggests this adjustment is already underway.

India’s higher interest-to-GDP ratio should be read as:

• A cost of building capacity early

• A reflection of domestic financial conditions

• A reminder that growth and fiscal discipline must move together

It is not a sign of stress, but it is a constraint that shapes policy choices.

Debt becomes a problem not when it exists, but when its cost grows faster than the economy that carries it.

* Disclaimer *

This article represents the author’s personal analysis and interpretation of publicly available data. The views expressed are for informational and educational purposes only and do not constitute financial, investment, legal, or policy advice.

No responsibility or liability is accepted for any loss or damage arising from reliance on this content.

Resources & Data Reference:

The IMF datasets were used to construct the comparisons of debt-to-GDP, GDP per capita growth, and interest payments as a share of GDP across major economies.

Aggregations and CAGR calculations performed by the author for analytical purposes.