25% target for state debt levels for the short-term; Punjab most pressurized: BoB study
debt levels and bring them closer to the Fiscal Responsibility and Budget Management goal of 20%, a recent study by economists at Bank of Baroda stated.
The study suggested debt to GDP ratio at 25% as a short-term goal and the interest to revenue receipts ratio targeted at around 15%.
“This can be a good beginning with roadmaps drawn up for various states,” the research stated.
Four states will allocate more than 15% of their revenue towards interest payments in FY24, with Punjab contributing nearly a quarter of its revenue to interest payments, the research found.
The study, analysing budget data for FY24 for 27 states, pointed that only three states in the country were closer to their FRBM target of 20% debt to Gross State Domestic Product ratio, whereas 15 were over 30%.
“The problem is that when debt levels are high interest payments increase, which strains the revenue budget,” said Madan Sabnavis, chief economist, Bank of Baroda.
While the study placed Odisha as the best state having controlled its debt, fiscal deficit and interest payment levels. It placed Punjab as the worst, with high levels of debt, fiscal deficit, interest payment ratios and outstanding guarantees.
“Himachal Pradesh is however more vulnerable as the debt servicing ratio is high.
