| 20 January, Thursday (1:00pm-2:30pm) Session 2A: Debt and Fiscal Issues |
Debt Sustainability of States in India
Author/s: Shalini Mittal, Rana Hasan
India follows a federal system. The FRBM act provides an upper limit of debt at 20% of GDP for states in India. However, debt sustainability of states has worsened over time with several states surpassing their limits and interest-growth differential turning positive. Increasing risks of debt sustainability prevent states from focusing on inclusive growth and increase capital spending. Using an inter-temporal government’s budget constraint and a panel of states' fiscal data from 1990-2019, this paper aims to assess factors that impact debt sustainability at state level and the impact of increased capital spending on states' debt dynamics.
JEL codes: E6, E62, H6, H63, O2