• The Centre’s interest payments have risen notably after the pandemic, accounting for 3.6% of the gross domestic product (GDP) and 30.4% of the revenue expenditure in fiscal 2024
  
• Increased market borrowings in the aftermath of the pandemic, higher recourse to the National Small Savings Fund, along with the high borrowing cost of the past, have led to an increase in interest payments
• High interest payments mean reduced fiscal flexibility

While the Union government’s progress down the fiscal consolidation path is well appreciated, it must be kept in mind that fiscal deficit/GDP ratio is still being normalised from the extraordinary high level it had reached in fiscal 2021 (9.2% o f GDP), the Covid year, and remained high at 5.6% of GDP (FY24 PA).

In the five years before the pandemic, the Centre’s fiscal deficit averaged 3.8% of GDP. Likewise, its debt-to-GDP ratio stood at 58.1% at the end of fiscal 2024, up from 47.7% before the pandemic, i.e. at fiscal 2020-end.

The elevated deficit and debt (and a couple of other factors, as we will see in subsequent sec tions), have led to an uptrend in the Centre's interest payments (Chart 1). After growing at 8.8% on average annually in the five pre-pandemic years (fiscal 2016 to 2020), interest payments surged 14.9%, on average, in the past four years (fiscals 2021-2024).