Sustainability and Threshold Value of Public Debt of Centre and All State Governments in India

K.R. Shanmugam and P.S. Renjith (renjith@gift.res.in)
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P.S. Renjith: Assistant Professor, Gulati Institute of Finance and Taxation, India

Working Papers from Madras School of Economics,Chennai,India

Abstract: This study examines the sustainability and the threshold level of public debt of Centre and all State Governments in India using the latest data from 1990-91 to 2020-21 and statistical methods and threshold regression method. The results of these methods suggest that the current levels of public debt of both Centre and all States are unsustainable, and the debt sustainability threshold is about 40 percent for the Centre and 22 percent for all States. There is a greater need for the Centre and all States to control their debt levels as they are currently growth reducing. The simulation exercises based on the debt dynamics suggest that the Indian economy (nominal) should grow at 12 percent and fiscal deficit target should be 2 percent each for the Centre and all States from 2023-24 onwards so that the Centre will attain the debt sustainability target before 2027-28 and all States in 2030-31. The relevant policy strategy for all Governments is revenue augmentation and containing public expenditures including unproductive subsidies.

Keywords: Sustainable Debt; Bohn Model; Penalized Spline; threshold model (search for similar items in EconPapers)
JEL-codes: C23 D72 E62 H63 H72 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-04
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