Public Debt in India: A Security Level Analysis

Piyali Das () and Chetan Ghate
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Piyali Das: Indian Institute of Management Indore

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: We assemble a novel data-set on Indian public debt that contains consistently defined aggregate annual components from 1951–2018, and Centre-State security level data from 2000– 2018. Using a standard debt-decomposition framework, we quantify the extent to which inflation, real GDP growth, nominal interest rates and the primary deficit/surplus explain Indian debt-dynamics. We show that inflation’s contribution to lowering public debt has been substantial over time. We also undertake a Hall and Sargent (1997, 2011) style debt-decomposition using all outstanding Centre and State securities from 2000–2018. We show that nominal returns on the marketable and non-marketable portions of the Centre’s debt account for the highest contribution in explaining the change in public debt. We show that while the adoption of flexible inflation targeting has diminished the role of inflation in debt liquidation, the large contribution of nominal returns pose a challenge to debt management.

Keywords: Public Debt; Debt Decomposition; Macro-finance; Debt Sustainability; Debt Liquidation; Fiscal Dominance; Indian Economy (search for similar items in EconPapers)
JEL-codes: E52 E62 E65 G12 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-10
New Economics Papers: this item is included in nep-mac
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Working Paper: Public Debt in India: A Security Level Analysis (2020)
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