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Does debt convergence hold in case of India?

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  • Vaseem Akram
  • Badri Narayan Rath

Abstract

Purpose - The purpose of this paper is to examine the convergence analysis of public debt among Indian states using annual data from 1990‒1991 to 2014‒2015. Design/methodology/approach - The paper tests this hypothesis using club convergence technique propounded by Phillips and Sul (2007). Findings - The results reveal the existence of debt divergence for overall Indian states. States are formed into four clubs on the basis of their level of debt, and three clubs support the hypothesis of club convergence. Further, the total public debt decomposes into three compositions such as market loans, bank loans and loans and advances from the central government. The existence of convergence is found for market loans and bank loans; however, the presence of divergence is found in case of loans and advances for overall states. Practical implications - Since public debt plays an important role for fiscal health of the Indian states, findings of this study suggest to squeeze the fiscal consolidation further for Indian states whose debts as a percentage to gross state domestic product are on the higher side. Further, the examination of debt convergence helps to manage debt level among the states because heavy dependence on public debt could retard investment and economic growth. Originality/value - Whereas bulk of empirical studies emphasize on examining the linkage between public debt and economic growth, and issue on debt sustainability across Indian states, examination of convergence of debt and its compositions (markets borrowings, bank loans and loans and advances from the central government) among the Indian states is scanty.

Suggested Citation

  • Vaseem Akram & Badri Narayan Rath, 2019. "Does debt convergence hold in case of India?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(4), pages 858-871, August.
    • Handle: RePEc:eme:jespps:jes-02-2018-0064
    DOI: 10.1108/JES-02-2018-0064
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    Citations

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    Cited by:

    1. Mateusz Tomal, 2024. "A review of Phillips‐Sul approach‐based club convergence tests," Journal of Economic Surveys, Wiley Blackwell, vol. 38(3), pages 899-930, July.
    2. Vaseem Akram & Jabir Ali, 2021. "Output convergence at sector level across Indian states: Evidence from weak sigma and club convergence analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(7), pages 1166-1188, October.
    3. Paravee Maneejuk & Sopanid Teerachai & Atinuch Ratchakit & Woraphon Yamaka, 2021. "Analysis of Difference in Household Debt across Regions of Thailand," Sustainability, MDPI, vol. 13(21), pages 1-24, November.
    4. Rath, Badri Narayan & Panda, Bibhudutta & Akram, Vaseem, 2023. "Convergence and determinants of ICT development in case of emerging market economies," Telecommunications Policy, Elsevier, vol. 47(2).
    5. Mihaela Simionescu & Javier Cifuentes‐Faura, 2023. "Analysing public debt in the Mexican states: Spatial convergence, regional drivers and policy recommendations," Papers in Regional Science, Wiley Blackwell, vol. 102(4), pages 737-760, August.

    More about this item

    Keywords

    Dynamic panel data model; Indian states; Phillips and Sul’s (2007) convergence test; Public debt convergence; H63; H74; C33;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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