The State of the States: Federal Finance in India

Barry Eichengreen and Poonam Gupta

No 180, NCAER Working Papers from National Council of Applied Economic Research

Abstract: Fully a third of India’s very considerable public debt is debt of the states, a large fraction by the standards of other federal economies. State debts vary from less than 20 percent of state GDP in Odisha, Maharashtra and Gujarat to nearly 50 percent in Punjab. The recent evolution of these variables points to continued divergence in debt burdens across lightly and heavily indebted states and bodes difficulties for the latter in meeting all but essential expenditures. In the last ten years, half of India’s larger states have added more than 10 percentage points to their debt-to-state-GDP ratios. Of the rest, about half have exhibited fiscal prudence, while the other half have exhibited moderate levels of debt increase. Under the business-as-usual scenario, a majority of states will become even more indebted, and the financial condition of more and less indebted states will continue to diverge. We point to reforms to strengthen fiscal discipline at the state level and address risks associated with the states’ relatively high level of public debt.

Keywords: Debt Management; Debt Sustainability; Federal Finance; Finance Commission; Fiscal Deficit; Public Debt; Contingent Liabilities; Subnational Finance (search for similar items in EconPapers)
JEL-codes: E62 H6 H61 H63 H72 H74 H75 H77 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2025-02-24
New Economics Papers: this item is included in nep-pbe
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