IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/81929.html
   My bibliography  Save this paper

Debt Sustainability of States in India: An Assessment

Author

Listed:
  • Kaur, Balbir
  • Mukherjee, Atri
  • Ekka, Anand Prakash

Abstract

The debt position of the state governments in India, which deteriorated sharply between 1997-98 and 2003-04, has witnessed significant improvement since 2004-05. Debt sustainability analysis based on empirical estimation of inter-temporal budget constraint and fiscal policy response function in a panel data framework, covering 20 Indian states for the period 1980-81 to 2015-16, indicates that the debt position at the state level is sustainable in the long run. The increase in contingent liabilities of states and take-over of large chunk of these liabilities through debt restructuring of State Power Distribution Companies, however, would adversely affect the debt position of states.

Suggested Citation

  • Kaur, Balbir & Mukherjee, Atri & Ekka, Anand Prakash, 2017. "Debt Sustainability of States in India: An Assessment," MPRA Paper 81929, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81929
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/81929/1/MPRA_paper_81929.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    2. Bhatt, Antra, 2010. "Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India," MPRA Paper 27422, University Library of Munich, Germany.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
    5. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
    6. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    7. Mishkin, Frederic S, 1984. "Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-1357, December.
    8. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    9. Miguel Ramirez, 2007. "A Panel Unit Root and Panel Cointegration Test of the Complementarity Hypothesis in the Mexican Case: 1960–2001," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(3), pages 343-356, September.
    10. Goyal, Rajan & Khundrakpam, J. K. & Ray, Partha, 2004. "Is India's public finance unsustainable? Or, are the claims exaggerated?," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 401-420, April.
    11. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    12. Cashin, P. & Olekalns, N., 2000. "An Examination of the Sustainability of Indian Fiscal Policy," Department of Economics - Working Papers Series 748, The University of Melbourne.
    13. Buiter, Willem H. & Patel, Urjit R., 1992. "Debt, deficits, and inflation: An application to the public finances of India," Journal of Public Economics, Elsevier, vol. 47(2), pages 171-205, March.
    14. Adams, Charles & Ferrarini, Benno & Park, Donghyun, 2010. "Fiscal Sustainability in Developing Asia," ADB Economics Working Paper Series 205, Asian Development Bank.
    15. Buiter, Willem H., 1987. "The Current Global Economic Situation, Outlook and Policy Options, with Special Emphasis on Fiscal Policy Issues," CEPR Discussion Papers 210, C.E.P.R. Discussion Papers.
    16. Giancarlo Marini & Alessandro Piergallini, 2008. "Indicators and Tests of Fiscal Sustainability: An Integrated Approach," CEIS Research Paper 111, Tor Vergata University, CEIS, revised 11 Jul 2008.
    17. Mr. Nigel A Chalk & Mr. Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 2000/081, International Monetary Fund.
    18. Aviral Kumar Tiwari, 2012. "Debt Sustainability in India: Empirical Evidence Estimating Time-Varying Parameters," Economics Bulletin, AccessEcon, vol. 32(2), pages 1133-1141.
    19. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    20. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Das, Piyali & Ghate, Chetan, 2022. "Debt decomposition and the role of inflation: A security level analysis for India," Economic Modelling, Elsevier, vol. 113(C).
    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. Piyali Das & Chetan Ghate, 2020. "Public Debt in India: A Security Level Analysis," Discussion Papers 20-08, Indian Statistical Institute, Delhi.
    5. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    6. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. P.S. Renjith & K.R. Shanmugam, 2018. "Sustainable Debt Policies of Indian State Governments," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(2), pages 224-243, May.
    2. Paul Alagidede & George Tweneboah, 2015. "On the Sustainability and Synchronization of Fiscal Policy in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(2), pages 213-240, November.
    3. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    4. Betty C. Daniel & Christos Shiamptanis, 2008. "Fiscal policy in the European Monetary Union," International Finance Discussion Papers 961, Board of Governors of the Federal Reserve System (U.S.).
    5. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Shigeyuki Hamori & Naoko Hamori, 2009. "Introduction of the Euro and the Monetary Policy of the European Central Bank," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7169, September.
    7. Piotr Krajewski & Michał Mackiewicz & Agata Szymańska, 2016. "Fiscal Sustainability in Central and Eastern European Countries - A Post-Crisis Assessment," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(2), pages 175-188.
    8. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 163-178, Spring.
    9. Daniel, Betty C. & Shiamptanis, Christos, 2013. "Pushing the limit? Fiscal policy in the European Monetary Union," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2307-2321.
    10. Alberto Bagnai, 2010. "CEEC vs. PIGS: a comparative panel assessment of financial sustainability and twin deficits," Working Papers LuissLab 1088, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    11. Chukiat Chaiboonsri & Prasert Chaitip & N. Rangaswamy, 2008. "A Panel Unit Root and Panel Cointegration Test of the Modeling International Tourism Demand in India," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 8(1), pages 95-124.
    12. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    13. Gogas, Periklis & Plakandaras, Vasilios & Papadimitriou, Theophilos, 2014. "Public debt and private consumption in OECD countries," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 1-7.
    14. Litsios, Ioannis & Pilbeam, Keith, 2017. "An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain," Economic Modelling, Elsevier, vol. 63(C), pages 143-152.
    15. Cho, Dooyeon & Lee, Kyung-woo, 2022. "Population aging and fiscal sustainability: Nonlinear evidence from Europe," Journal of International Money and Finance, Elsevier, vol. 126(C).
    16. António Afonso & João Tovar Jalles, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Papers Department of Economics 2012/29, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    17. Giancarlo Marini & Alessandro Piergallini, 2008. "Indicators and Tests of Fiscal Sustainability: An Integrated Approach," CEIS Research Paper 111, Tor Vergata University, CEIS, revised 11 Jul 2008.
    18. Lin, Boqiang & Omoju, Oluwasola E., 2017. "Focusing on the right targets: Economic factors driving non-hydro renewable energy transition," Renewable Energy, Elsevier, vol. 113(C), pages 52-63.
    19. Munawar-Shah, Syed & Abdul-Majid, Mariani & Hussain-Shah, Syed, 2014. "Assessing Fiscal Sustainability for SAARC and IMT-GT Countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 5(2), pages 26-40.
    20. Canofari, Paolo & Marini, Giancarlo & Piergallini, Alessandro, 2020. "Financial Crisis and Sustainability of US Fiscal Deficit: Indicators or Tests?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 192-204.

    More about this item

    Keywords

    gross fiscal deficit; public debt; state governments;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:81929. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.