ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Dynamics of Debt Accumulation in India

Accumulation of debt can be seen as the resultant of the balance between cumulated primary deficits and the cumulated weighted excess of growth over interest rate. Decomposing the change in the central governmentâ??s liabilities relative to GDP since 1951-52, it is seen that but for three recent years, the accretion to debt relative to GDP was due to the cumulated primary deficits. A significant part of the effect of the cumulated primary deficits could be absorbed in the sixties, seventies, and the nineties due to the excess of growth over interest rate. However, there were large unabsorbed parts in the fifties and the eighties. The cushion provided by the excess of growth over interest rate may not continue to be available for long. For three years, viz, 2000-01 to 2002-03, the interest rate exceeded the growth rate. This, together with the continuing primary deficits though at a reduced level, led to acceleration in the increase in the debt-GDP ratio in recent years. For stabilisation of the debt-GDP ratio at current or reduced levels, focus on primary balance becomes necessary.

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