Sub-national government debt sustainability in India: an empirical analysis

Abstract

ABSTRACT Recognizing the increasing precedence of fiscal shocks leading to a deterioration in states’ debt due to the realization of contingent liabilities, this study assesses the debt sustainability of Indian states by employing both conventional and augmented debts, obtained by incorporating information on states’ guarantees. Results indicate that states’ debt is just sustainable with potential signs of unsustainability. Guarantees given by states, if invoked, could certainly pose a potential risk to debt sustainability for Indian states. The study suggests revisiting and reviewing states’ FRLs with the inclusion of debt as a medium-term anchor, and greater transparency with regard to contingent liabilities.