The debt-to-Gross State Domestic Product (GSDP) ratio is a key indicator used to assess the fiscal health and economic sustainability of a state or country.
This ratio represents the relationship between a state’s total outstanding debt and its GSDP, providing insights into how much a state is borrowing in relation to the size of its economy.
A lower ratio indicates that a state is borrowing within its means and is less reliant on debt to finance its expenditures. Conversely, a higher ratio suggests that a state may be over-leveraged and could face challenges in meeting its debt obligations, potentially leading to fiscal stress.
Importance of the Debt-to-GSDP Ratio
- Fiscal Sustainability:
A manageable debt-to-GSDP ratio is essential for ensuring that a state can meet its debt obligations without compromising its ability to fund essential services like education, healthcare, and infrastructure development. A
- Borrowing Capacity:
- States with a lower debt-to-GSDP ratio are seen as more creditworthy.
- This allows them to borrow at lower interest rates in the capital markets, which is crucial for financing developmental projects without overburdening future generations.
- Budget Planning and Economic Growth:
- States with high debt levels may be constrained in terms of spending on capital expenditure and infrastructure, as a significant portion of the budget may need to be allocated towards servicing debt.
- Conversely, lower debt enables higher spending on development projects and social welfare schemes, fostering economic growth.
- Investor Confidence:
- A stable and manageable debt-to-GSDP ratio can increase investor confidence, making it easier for the state to attract investments.
- It reflects fiscal discipline and prudent financial management, assuring investors that the state is taking steps to keep its debt levels under control.
- Fiscal Responsibility:
- Maintaining a reasonable debt-to-GSDP ratio is in line with fiscal responsibility legislations, such as the Fiscal Responsibility and Budget Management (FRBM) Act in India.
- These frameworks aim to limit fiscal deficits and ensure that borrowing is done for productive investments rather than for funding recurring expenses.
Key Highlights of Assam’s Budget 2025-26:
- Debt-to-GSDP Ratio: Assam’s debt-to-GSDP ratio is 24.3%, significantly lower than other states like Punjab (41.4%), Himachal Pradesh (41.1%), and Arunachal Pradesh (36.5%).
- Prudent Financial Management: Despite borrowings through various funds (SASCI, EAP, RIDF), Assam’s debt remains within the prescribed 32% limit, thanks to careful fiscal management.
- GSDP and Per Capita Income Growth:
- Assam’s GSDP grew by 19% in 2023-24 and 13% in 2024-25, outpacing the national GDP growth of 10%.
- Per capita income increased from Rs 60,817 in 2015-16 to Rs 1,54,222 in 2024-25, though the year-on-year growth in per capita income slowed from 17% in 2023-24 to 10% in 2024-25.
- Capital vs Revenue Expenditure: Borrowed funds are primarily directed towards capital expenditure, not towards recurring expenses like salaries.
- Employment Growth:
- Labour force participation rate rose from 35.6% in 2020 to 42.7% in 2024.
- Unemployment rate improved, dropping from 9.9% in 2020 to 7.9% in 2024.
- Banking Sector Performance: Assam’s credit-deposit ratio improved from 56.26% in December 2021 to 72.56% in December 2024, facilitating Rs 1,59,552 crore in credit extension to priority sectors.
- Tax Revenue Growth: In 2023-24, Assam’s tax department collected Rs 22,580 crore, marking a 15% growth from the previous year. As of February 2025, the total revenue collected (including GST) reached Rs 21,578 crore, reflecting a 5% growth.
The debt-to-GSDP ratio is a crucial fiscal indicator that highlights the borrowing practices and economic health of a state.
