India's debt to GDP could climb to 87.6 percent this fiscal, up from 72.2 percent last year, because of a collapsing GDP and consequently higher borrowings, said a note by SBI Ecowrap, a research publication of the State Bank of India.

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In absolute terms, the SBI Ecowrap team sees India's gross debt rising to around Rs 170 lakh crore this fiscal.

"The GDP collapse is pushing up the debt to GDP ratio by at least 4 percent, implying that growth rather than continued fiscal conservatism is the only mantra to get us back on track," said the note.

"We again reiterate that the current thinking of rating downgrade in policy circles is a false negative as India’s rating is likely to face a litmus test of downgrade in FY21 depending on what we have done to bring growth back to track," the note said.

The note said that the higher debt will also lead to shifting of the Fiscal Responsibility and Budget Management (FRBM) target of combined debt to 60 percent of GDP by FY23 by 7 years with the target now looking achievable in FY30 only.

"The moot point is the sustainability of the Indian debt. The current level of foreign exchange reserves are sufficient to meet any external debt. On the internal debt, since most of the debt is domestically owned, the debt servicing of the same is not an issue," the note said.

SBI Ecowrap has recommended direct monetization as a preferred policy option, as it could facilitate borrowing at a lower cost and anchor inflationary expectations for the time being.