India’s government is under growing pressure as fresh borrowing is increasingly being used to pay interest on old debt, even as officials point to easing debt metrics.
Data tabled in Parliament showed that 81.8% of new borrowing in FY26 went toward interest payments, up from 50.9% in FY22, underscoring how much of the Centre’s financing is tied up in servicing past liabilities. The outstanding debt of the central government stood at ₹201.17 lakh crore as of March 31, 2026, and is projected to rise to ₹228.27 lakh crore by the end of FY27
The government has argued that the broader debt picture is improving. It said the debt-to-GDP ratio eased to 58.2% in FY26 from 58.5% a year earlier, and projected a further decline to 55.6% in FY27. Officials also said the ratio of interest payments to revenue receipts has fallen from 41.6% in FY21 to 37.6% in FY26, suggesting some improvement in debt-servicing capacity.
Still, the burden remains heavy. Interest payments were ₹12.43 lakh crore in FY26 and are budgeted at ₹14.04 lakh crore for the current year, while gross market borrowings for FY27 were initially set at ₹17.2 lakh crore before being trimmed to ₹16.09 lakh crore. The government has also said interest payments account for 26% of total expenditure and about 40% of revenue receipts, limiting room for other spending.
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