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Sustainable Debt Policies of Indian State Governments

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  • P. S. Renjith

    (Research Scholar, Madras School of Economics)

  • K.R. Shanmugam

    (Professor and Director, Madras School of Economics)

Abstract

This article empirically tests whether the public debt is sustainable in 20 major Indian States during 2005-06 to 2014-15, using the Bohn framework for panel data and penalized spline techniques. Results of the study indicate that the debt of Indian State governments as a whole is sustainable. However, at the disaggregated level, the public debt is sustainable in only 12 States and in the remaining 8 States, it is unsustainable and they need corrective actions. Incidentally, in these 8 States, the debt growth is lower than the economic growth and the poverty ratio has come down significantly, indicating that they have seemed to use their debt policy to enhance the welfare of their citizens. We hope these results are useful to policy makers, international agencies and other stakeholders to take appropriate steps to sustain the debt of Indian States

Suggested Citation

  • P. S. Renjith & K.R. Shanmugam, 2018. "Sustainable Debt Policies of Indian State Governments," Working Papers 2018-171, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2018-171
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    Cited by:

    1. K. R. Shanmugam & P.S. Renjith, 2022. "Empirical Analysis on Sustainability of Public Debt in Indian States," Working Papers 2022-235, Madras School of Economics,Chennai,India.
    2. Shiv Shankar & Pushpa Trivedi, 2023. "Assessing India’s fiscal sustainability considering debt–deficit and financing dynamics," Indian Economic Review, Springer, vol. 58(1), pages 41-70, June.
    3. Abdhut Deheri & Ajit Nag, 2023. "Assessing the Long-Run Sustainability of Public Debt and Fiscal Deficit in India," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(3), pages 313-329, September.
    4. Lawrence Ogbeifun & Olatunji Shobande, 2020. "Debt sustainability and the fiscal reaction function: evidence from MIST countries," Future Business Journal, Springer, vol. 6(1), pages 1-8, December.

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    More about this item

    Keywords

    Primary Balance; Sustainable Debt; Indian States; Bohn Framework;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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