Designing Medium-Term Debt Management Strategy (MTDS) for Subnational Debt Management in India

Dinesh Kumar Nayak () and Pratap Ranjan Jena ()
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Dinesh Kumar Nayak: National Institute of Public Finance and Policy
Pratap Ranjan Jena: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Post-COVID, Indian states have moved from crisis to recovery with moderating revenue and fiscal deficit, yet debt-to-GSDP ratios remain elevated at 28–30 percent. While state-level fiscal architecture is anchored in the FRBM Acts, no state has adopted a formal Medium-Term Debt Management Strategy (MTDS). This paper addresses that gap by designing an MTDS aligned with IMF–World Bank best practices, applicable to Indian states. Using Goa as a case study, we decompose changes in the debt-to-GSDP ratio into three drivers: the interest–growth differential, the primary balance, and stock–flow adjustments. We then evaluate alternative borrowing strategies under multiple macroeconomic scenarios through a structured cost-risk framework. The results demonstrate that a cost-minimising combination of maturity diversification and prudent debt composition can support compliance with fiscal rules over the medium term. Institutional and governance dimensions are assessed using the PEFA and DeMPA diagnostic tools, revealing the need for dedicated debt management units within state governments. By aligning statutory fiscal rules with forward-looking debt strategies, the study offers a replicable template for strengthening fiscal sustainability, transparency, and risk management across Indian states.

Keywords: subnational debt management; medium-term debt management strategy (MTDS); debt sustainability analysis; fiscal rules; Indian state finances; PEFA; DeMPA; cost-risk trade-of (search for similar items in EconPapers)
JEL-codes: E62 G28 H63 H74 H77 (search for similar items in EconPapers)
Date: 2026-04
Note: Working Paper 448, 2026
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