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Debt Sustainability of States in India: An Assessment

Kaur, Balbir and Mukherjee, Atri and Ekka, Anand Prakash (2017): Debt Sustainability of States in India: An Assessment.

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Abstract

The debt position of the state governments in India, which deteriorated sharply between 1997-98 and 2003-04, has witnessed significant improvement since 2004-05. Debt sustainability analysis based on empirical estimation of inter-temporal budget constraint and fiscal policy response function in a panel data framework, covering 20 Indian states for the period 1980-81 to 2015-16, indicates that the debt position at the state level is sustainable in the long run. The increase in contingent liabilities of states and take-over of large chunk of these liabilities through debt restructuring of State Power Distribution Companies, however, would adversely affect the debt position of states.

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