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It's a critical macroeconomic challenge that can undermine fiscal sustainability, hinder long-term economic growth, and necessitate difficult austerity measures, impacting public welfare and development.
A debt-interest spiral occurs when a government's rising interest payments on its existing debt become so large that it must borrow even more just to service this interest, leading to a continuous increase in the overall debt burden.
Trigger
Often triggered by persistent fiscal deficits and insufficient revenue growth.
Resource Diversion
Leads to a larger portion of government revenue being allocated solely to debt servicing.
Impact on Development
Reduces funds available for welfare schemes and crucial capital expenditure, hindering productive investments.
Fiscal Sustainability
Severely impairs a government's ability to achieve long-term fiscal sustainability.
Static syllabus anchors
| Type | Reference |
|---|---|
| Conceptual area | Public Finance |
| Conceptual area | Macroeconomic Stability |
Institutions & roles
| Body | Role |
|---|---|
| State Finance Ministry | Manages |
Prelims angle: Statement-based questions
Prelims angle: Conceptual understanding
Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings ...
A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabil...
Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings ...
A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabil...
A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national in...
With reference to Indian economy, consider the following : 1. Bank rate 2. Open market operations 3. Public debt 4. Public revenue Which of the above is/are...
A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national in...
With reference to Indian economy, consider the following : 1. Bank rate 2. Open market operations 3. Public debt 4. Public revenue Which of the above is/are...
A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national in...
Open questionWith reference to Indian economy, consider the following : 1. Bank rate 2. Open market operations 3. Public debt 4. Public revenue Which of the above is/are...
Open questionA decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national in...
Open questionWith reference to Indian economy, consider the following : 1. Bank rate 2. Open market operations 3. Public debt 4. Public revenue Which of the above is/are...
Open questionSuppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings ...
Open questionA country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabil...
Open questionSuppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings ...
Open questionA country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabil...
Open questionFirst Vijay government budget: Why debt is Tamil Nadu’s biggest fiscal challenge
06 Aug 2026 · The debt-interest spiral is a self-perpetuating cycle where increasing interest payments force more borrowing, escalating total debt and diverting funds from productive uses, thereby jeopardizing fiscal health.
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Debt-Interest Spiral
UPSC has asked 8 linked questions on Debt-Interest Spiral in Mains. Write an answer to one — and get it evaluated.
Practice official previous year questions asked by UPSC related to this concept.
With reference to the Indian economy, consider the following statements : 1. A share of the household financial savings goes towards government borrowings. ...
With reference to Indian economy, demand pull-inflation can be caused/increased by which of the following? 1. Expansionary policies 2. Fiscal stimulus 3. Inf...
Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings ...
A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabil...
A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national in...
Consider the following statements 1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 6...
With reference to Indian economy, consider the following : 1. Bank rate 2. Open market operations 3. Public debt 4. Public revenue Which of the above is/are...
Consider the following statements: Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be ...
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