India Alone Among Major Emerging Markets to Slash Debt Ratio by 2031
RBI Deputy Governor Poonam Gupta reveals India is the only trillion-dollar emerging economy set to lower its debt-to-GDP ratio by 2031.
In a striking contrast to global economic trends, India is projected to be the only emerging market economy among those with a GDP exceeding USD 1 trillion that will successfully reduce its government debt-to-GDP ratio between 2025 and 2031. This revelation came from Reserve Bank of India (RBI) Deputy Governor Poonam Gupta, who underscored the nation's robust fiscal standing at a time when the rest of the world is grappling with surging borrowing costs and mounting debt.
The Numbers: India vs The World
Speaking at the Business Standard BFSI Insight Summit, Gupta shared projections that paint a vivid picture of India's fiscal trajectory. While most advanced and emerging nations are seeing their debt burdens climb, India is moving in the opposite direction.
India's Projected Path:
- 2025-26: General government debt is estimated at 84.3 per cent of GDP.
- 2031-32: This figure is expected to drop significantly to 75.1 per cent.
This downward trend stands in stark opposition to the global scenario. Citing October 2026 projections from the International Monetary Fund (IMF), Gupta noted that global public debt, which stood at 94 per cent of GDP in 2025, is on track to breach the 100 per cent mark by 2030, potentially hitting 102 per cent by 2031.
A Widening Gap in Global Fiscal Health
The divergence is even more pronounced when comparing advanced economies with emerging ones. The debt ratio for advanced economies is expected to worsen, climbing from 108.2 per cent of GDP in 2025 to 115.2 per cent by 2031. Similarly, other emerging market and developing economies are projected to see their ratios rise from 73.7 per cent to 84.2 per cent over the same period.
What is Driving India's Success?
Deputy Governor Gupta attributed India's favorable outlook to a strategic combination of fiscal discipline and economic momentum. Key drivers include:
- Strong Nominal GDP Growth: Projected at approximately 11 per cent annually, this growth comfortably exceeds the effective interest rate on government debt, which sits at about 7 per cent. This gap is crucial for keeping the debt ratio on a declining path.
- Fiscal Consolidation: A concerted effort to manage spending and reduce the primary deficit.
- Quality of Spending: There has been a marked shift toward capital expenditure. General government capital expenditure is expected to reach 5.8 per cent of GDP in 2025-26, up from roughly 4 per cent in 2019-20.
Gupta emphasized that increasing capital expenditure does more than just build infrastructure; it attracts private investment and bolsters the overall growth potential of the economy, which in turn helps sustain the debt reduction process.
Managing Risks in a Volatile World
Despite the optimistic outlook, the RBI Deputy Governor did not ignore the headwinds. She cautioned that the global fiscal environment remains precarious. High borrowing costs and elevated debt levels across the globe have left many governments with limited room to maneuver when facing future economic shocks.
However, India possesses a strategic advantage in how its debt is structured. Gupta pointed out that India's public debt is primarily:
- Long-term in nature.
- Denominated in domestic currency.
- Held domestically.
These factors significantly mitigate refinancing risks and protect the economy from the volatility of international currency markets. The RBI Deputy Governor concluded that India has successfully balanced fiscal prudence with the need to manage external shocks, avoiding an over-reliance on fiscal measures to prop up the economy.