Interest on public debt may eat away half of govt tax revenue in FY21, FY22

The fiscal headroom for the central government may shrink as interest on public debt is set to consume more than half of the government’s tax revenues this fiscal year as well as the next.

Expenditure on interest will account for 52.4 per cent of the central tax revenues in FY22 — the highest in 18 years and up from 37 per cent in FY20.

As a result, the ratio of tax revenue to expenditure on interest payment will decline to an 18-year low of 1.9x in FY22 from 2.7x in FY20 and 2.14x five years ago.

The Budget has projected 16.9 per cent