Sustainability and Threshold Value of Public Debt in Tamil Nadu

K. R. Shanmugam () and K. Shanmugam ()
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K. R. Shanmugam: Director and Professor, Madras School of Economics
K. Shanmugam: Chief Secretary of Government of Tamil Nadu and Senior Research Fellow of Madras School of Economics
Authors registered in the RePEc Author Service: Shanmugam K. Rangasamy

Working Papers from Madras School of Economics,Chennai,India

Abstract: This study examines the sustainability and the threshold level of public debt in Tamil Nadu using statistical methods and threshold regression method. The results of these methods suggest that the current level of debt in the state is unsustainable, and the debt sustainability threshold is about 18.5 percent which is slightly lower than the 20 percent norm sets by Fiscal Responsibility and Budget Management Review Committee for all Indian states. Since the roadmap suggested by the Fifteenth Finance Commission is not the sustainable level, the state should control its debt as it is not currently growth inducive. The simulation exercise based on the debt dynamics of the state suggests that the state economy should grow at 14 percent and fiscal deficit target should be 2 percent from 2023-24 onwards to attain the debt sustainability target in 2035-36 and with 16 percent growth the state could reach the target in 2030-31. The relevant policy strategy for the state is to increase its own revenue-GSDP ratio by 0.75 percent and contain its revenue expenditures by 0.75 percent from 2023-24.

Keywords: sustainability (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-08
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