Rajat Mehrotra,
financial and economic experts
If the income of any family continues to decrease and expenses increase, then there comes a time when it has to take a loan to meet its needs. In the beginning, this loan provides relief, but if work is not done to increase income, then gradually the same loan becomes a burden. The same thing applies to the economy of any country. Debt in itself is not bad, but if it is not used properly and new economic challenges arise, then financial pressure may increase in the future. Today, some similar signs are visible in India too, which are very important to be understood in time.
India is today among the fastest growing large economies in the world. Strong domestic market, digital revolution, rapidly developing infrastructure, growing manufacturing and young population are India’s biggest strengths. Many leading institutions of the world believe that India can become the biggest base of global economic growth in the coming years, but at the same time, we are also facing the challenges of increasing government debt, climate change, possible El Nino, increasing electricity demand, dependence on fossil fuels, global geopolitical tensions, uncertainty of exports and agricultural sector.
It is important to clearly understand that India is not in any debt crisis at this time. The government is constantly trying to maintain financial discipline. The fiscal deficit target in the Union Budget 2026-27 has been set at 4.3 percent of gross domestic product (GDP), compared to last year’s revised estimate of 4.4 percent. This shows that the government is gradually moving towards fiscal balance.
Still, it is a matter of concern that if the pace of economic growth slows down in the future and on the other hand, the burden of government debt and interest on it continues to increase, then the government’s ability to spend on development works may be limited. According to the International Monetary Fund (IMF), India’s total public debt is equal to about 83 percent of the country’s GDP. This level is not yet considered a cause for concern, but it does indicate that the borrowed money will have to be used very thoughtfully.
If the loan is used in sectors like roads, railways, ports, irrigation, water conservation, power, education, health, research and industry, then the same investment increases employment and income in future, but if a large part of the borrowing starts being used only to meet government expenditure, then the pace of development may be affected in the coming years. At this time, climate change is also increasing economic risks. Events like increasing heat, irregular rainfall, drought and floods can affect farming. If the monsoon remains weaker than normal, crop production may decline. Due to this, food items will become expensive, the income of farmers will reduce and the purchasing power of rural areas will be affected. When demand is low in villages, it also impacts the industries and business of cities.
The strongest base of India’s economy is micro, small and medium industries i.e. MSMEs. This sector contributes about 30.1 percent to the country’s GDP, 35.4 percent to manufacturing output and about 45.7 percent to total exports. This sector, which employs crores of people, is the first to suffer the impact of expensive loans, weak demand, rising energy costs and delays in payments. If MSMEs weaken, its impact reaches employment, production and banking system.
Energy security is also going to be the biggest challenge in the coming years. The demand for electricity is continuously increasing due to air conditioners, data centers, electric vehicles, urbanization and industrial expansion. On the other hand, fossil fuels still account for a large share in electricity generation. If crude oil or gas prices rise in the international market or tensions in West Asia deepen, India’s import bill will increase. This may increase inflation and affect the monthly budget of common families.
Along with this, increasing trade tensions and geopolitical conflicts in the world can also affect India’s exports. If global demand weakens, new challenges may arise before Indian industries. India’s external debt stood at about US$762.8 billion as of March 2026, although this is about 20.8 percent of the GDP and is currently considered at a safe level, yet it is necessary to keep a constant eye on it in the changing global circumstances. If the income of industries decreases and MSMEs become weak, it may also impact banks and financial institutions. Increasing difficulty in repaying loans may increase bad loans (NPAs) and slow down new investments. Its direct impact will be visible on employment and economic development.
We also have solutions to these challenges. The government will have to increase capital investment while maintaining financial discipline. The biggest need of the hour is water conservation, rain water harvesting, irrigation system, renewable energy, green hydrogen, domestic manufacturing, research, skill development and strengthening export competitiveness. Equally important will be improving the quality of government spending and strengthening the tax base.
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