Faculty Coordinator: Dr Renjith P S
Faculty Team: Dr. Anoop S Kumar, Dr. Kiran Kumar Kakkarlapudi, Dr Vidya V Devan
Public borrowing has long helped India reconcile ambitious development goals with limited tax capacity. At the national level, debt dynamics shape macroeconomic stability and fiscal space, while at the sub-national level, states’ borrowing decisions critically influence infrastructure investment, welfare provision, and fiscal sustainability. Together, these levels define the trajectory of India’s general government debt–deficit position, a central concern as the country advances toward Vision 2047.
This research pillar aims to examine the debt and deficits in both dimensions, with particular emphasis on state-level dynamics in the post-2000 period and the COVID-19 shock that sharply expanded borrowing needs. On the fiscal side, the study tracks the evolution and drivers of debt accumulation: rising debt-to-GDP and debt-to-GSDP ratios, persistent deficits, off-budget borrowings, and contingent liabilities. Frameworks such as Bohn’s fiscal response model and the IMF’s augmented debt approach will be applied to evaluate sustainability. Methodologically, difference-in-differences, quantile regression, and panel ARDL models will test how debt responds to output shocks, whether market perceptions (via SDL spreads) reward credible fiscal policy, and how institutional factors, political cycles, fiscal rules, and pay commission awards affect borrowing at both the Union and state levels.
On the economic side, the study explores the growth and welfare implications of debt. Threshold regression will assess whether debt above certain levels constrains growth by crowding out investment. Composition analysis will separate productive, capital-oriented borrowing from consumption-driven debt. Welfare linkages will be probed by connecting debt-financed spending to health and education outcomes. Cyclicality and volatility in borrowing, particularly in resource-dependent states, will be studied through regime-switching models.
By integrating national and state experiences, the study treats public debt not as a static liability but as the outcome of fiscal institutions, political incentives, and macroeconomic forces. Insights on sustainable debt levels and credible fiscal rules will be crucial for maintaining growth and stability on India’s path to 2047.