Interest payments are a significant component of expenditure of the central government. A substantial amount, nearly one-fifth to one-third of tax collection of the Government of India, is accounted for by interest payments. In 2014–15, interest payments were 3.3% of the gross domestic product. In 2015–16, net interest payments (difference between the interest payments and interest receipts) pre-empted over 34% of the revenue receipts. High interest payments can shelf other developmental activities due to non-availability of funds. It is, therefore, imperative to examine measures to reduce interest payments. This paper explores two approaches to reduce interest expenditure incurred by the central government inflation indexed bonds and restructuring of existing debt.
Interest payments are a significant component of expenditure of the central government. A substantial amount, nearly one-fifth to one-third of tax collection of the Government of India, is accounted for by interest payments. In 2014–15, interest payments were 3.3% of the gross domestic product. In 2015–16, net interest payments (difference between the interest payments and interest receipts) pre-empted over 34% of the revenue receipts. High interest payments can shelf other developmental activities due to non-availability of funds. It is, therefore, imperative to examine measures to reduce interest payments. This paper explores two approaches to reduce interest expenditure incurred by the central government inflation indexed bonds and restructuring of existing debt.
