ISSN (Online) - 2349-8846
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Need to Rationalise Rising Interest Burden on Central Government Public Debt

K Kanagasabapathy ( is former adviser, RBI and former director, EPW Research Foundation, Mumbai.

Charan Singh ( is RBI chair professor, Economics & Social Sciences, Indian Institute of Management, Bangalore. Sharada Shimpi (sharadash@IIMB.ERNET.IN) is former research associate, Economics & Social Sciences, Indian Institute of Management, Bangalore.

Interest payments are a significant component of expenditure of the central government. A substantial amount, nearly one-fifth to one-third of tax collection of the Government of India, is accounted for by interest payments. In 2014–15, interest payments were 3.3% of the gross domestic product. In 2015–16, net interest payments (difference between the interest payments and interest receipts) pre-empted over 34% of the revenue receipts. High interest payments can shelf other developmental activities due to non-availability of funds. It is, therefore, imperative to examine measures to reduce interest payments. This paper explores two approaches to reduce interest expenditure incurred by the central government inflation indexed bonds and restructuring of existing debt.

The authors would like to thank Gyanoba Rao, Jafar Baig, Rohan Das and Subhash Bharadwaj for research assistance. The authors would also like to thank the anonymous referee for comments and observations.

Updated On : 29th Jan, 2018


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