Indian States Debt Is Just About Sustainable With Some Signs Of Unsustainability Likely To Emerge
Capital MarketReserve bank of India (RBI) has come up with a research paper to assesses the sustainability of debt for Indian states. Fiscal shocks through schemes like Ujwal DISCOM Assurance Yojana (UDAY) have led to increased fiscal pressures exacerbating the debt dynamics of states at periodic intervals. Recognising the increasing precedence of such fiscal shocks and invoking of contingent liabilities, the paper uses both conventional liabilities/debt and the augmented debt arrived at by incorporating information on states' guarantees and their likely fall out on states' budgets. The sustainability is assessed using a standard indicator based approach and panel data framework for the post Fiscal Responsibility Legislations (FRLs) period. Results indicate that states debt is just about sustainable with some signs of unsustainability likely to emerge. Guarantees given by states, if invoked, could certainly pose a potential risk to debt sustainability for Indian States. This has clear policy implications in terms of revisit of States' FRLs with inclusion of debt as a medium term anchor coupled with greater transparency with regard to contingent liabilities/off-budget borrowings. The paper does not cover the COVID-19 pandemic period and its impact on state finances. The Working Paper is titled Subnational Government Debt Sustainability in India: An Empirical Analysis and is authored by Sangita Misra, Kirti Gupta and Pushpa Trivedi.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content