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The State of the States: Federal Finance in India

Author

Listed:
  • Barry Eichengreen

    (University of California, Berkeley)

  • Poonam Gupta

    (National Council of Applied Economic Research, Delhi, India)

Abstract

Fully a third of India’s very considerable public debt is debt of the states, a large fraction by the standards of other federal economies. State debts vary from less than 20 percent of state GDP in Odisha, Maharashtra and Gujarat to nearly 50 percent in Punjab. The recent evolution of these variables points to continued divergence in debt burdens across lightly and heavily indebted states and bodes difficulties for the latter in meeting all but essential expenditures. In the last ten years, half of India’s larger states have added more than 10 percentage points to their debt-to-state-GDP ratios. Of the rest, about half have exhibited fiscal prudence, while the other half have exhibited moderate levels of debt increase. Under the business-as-usual scenario, a majority of states will become even more indebted, and the financial condition of more and less indebted states will continue to diverge. We point to reforms to strengthen fiscal discipline at the state level and address risks associated with the states’ relatively high level of public debt.

Suggested Citation

  • Barry Eichengreen & Poonam Gupta, 2025. "The State of the States: Federal Finance in India," NCAER Working Papers 180, National Council of Applied Economic Research.
    • Handle: RePEc:nca:ncaerw:180
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    File URL: https://ncaer.org/publication/the-state-of-the-states-federal-finance-in-india/
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    More about this item

    Keywords

    Debt Management; Debt Sustainability; Federal Finance; Finance Commission; Fiscal Deficit; Public Debt; Contingent Liabilities; Subnational Finance;
    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
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • 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
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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