India’s Debt Dilemma: Investigating Threshold, Primary Surplus, and Institutional Quality

Pratibha S. and Krishna Muniyoor

Journal of Emerging Market Finance, 2025, vol. 24, issue 4, 439-460

Abstract: A steady increase in India’s public debt (PD) during the post-COVID-19 phase, as in many other developing economies, has received significant scholarly attention. This study examines India’s debt sustainability based on debt threshold estimation, which, if exceeded, is likely to hinder economic growth and impede future surges. It explores the role of institutional quality (IQ) in stimulating economic growth and reducing the negative effect of PD on primary surplus by employing the quadratic autoregressive distributed lag bound test approach and the fiscal reaction function. Focusing on India, this study analyzes data from 1985 to 2023. The findings suggest that India has already surpassed the debt threshold of 76.83%, partly due to the acceleration of public expenditure during the COVID-19 pandemic. Moreover, while rising PD negatively affects primary surplus, IQ plays a significant role in alleviating this impact and fostering economic growth. JEL Codes: O43, H63, H68, C22, O53

Keywords: Institutional quality; public debt; debt threshold; debt sustainability; ARDL; India (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:24:y:2025:i:4:p:439-460

DOI: 10.1177/09726527251345112

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