Fiscal Sustainability in India at State Level

Abstract

The consolidated measures of budget deficits and public debt levels for India's central and state governments are well above the average of other emerging economies. In contrast to previous studies of India's budgetary position, which focus on the central government's budget, this paper examines fiscal sustainability at the level of India's states, which differ widely in terms of their level of economic development. After comparing fiscal performance in the states, key formulae for examining public debt sustainability at the sub-national level in India are derived. These formulae are then applied, firstly to identify states where public debt has stabilized as a percent of Gross State Domestic Product, and secondly to gauge the size of the primary budget balances needed to achieve a 25% public debt to GSDP ratio within three, five and ten year horizons.