An empirical examination of public debt sustainability in Indian states

The issue of sustainability at sub-national level in India has been addressed by making use of indicators approach and econometric testing. Key policy variables were studied over a period of 35 years by using indicators and econometric approach. Through panel unit root and Pedroni's co-integration analysis, it was found that first-ordered series of real aggregates, namely, public debt, government expenditure and government revenues were stationary. Further, these aggregates were tested to have borne a long-run equilibrium relationship in a panel framework but disaggregated level analysis (as gauged through indicators approach) revealed that some states were under persistent fiscal stress. It is important to mention that such analyses have been performed on total outstanding liabilities of the states and other aspects, outside the scope of present analysis like implicit government liabilities, population aging, government subsidies and pension schemes may also endanger the fiscal sustainability in the future.