Gujarat, Odisha, West Bengal and Maharashtra may have crack the debt code
debt-to-GSDP ratio, while Punjab and Tamil Nadu have seen the sharpest increases, according to a paper by economists.
The study, authored by NCAER economist Barry Eichengreen and the agency’s chief Poonam Gupta, who is also a member of the advisory council to the 16th Finance Commission, estimates that Punjab and possibly Rajasthan could see their debt-to-GSDP levels exceed 50% by 2027-28. This highlights the need for focused action to address the rising debt burden.
The paper calls for a reassessment of the Finance Commission’s role. «Finance Commissions have not been asked to consider overall fiscal prudence when recommending allocations. The horizontal devolution (state-wise) of taxes among states… does not provide incentives for fiscal rectitude. Perversely, Finance Commissions are mandated to allocate more resources to states with larger revenue deficits, which is an obvious source of moral hazard and a mechanism through which errant states are subsidised,» it said.
India has the highest subnational debt as a percentage of GDP among BRICS countries and the highest as a share of revenue of any country.
A third of India’s total public debt is attributed to the states, a significant fraction compared to other federal economies. Over the past decade, half of India's larger states have added more than 10 percentage points to their debt-to-GSDP ratios. Of the rest, some have exercised fiscal discipline, while others have recorded moderate increases in debt.
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