According to NCAER Director General Poonam Gupta, India's public debt is very high at nearly 82 percent of GDP. However, the country doesn't face issues pertaining to debt sustainability on account of high growth rate and higher share of local currency debt.
Furthermore, Gupta while participating in an event organized by NCAER said India's high debt levels are sustainable for now. This is due to the higher real or nominal GDP and as most of the debt is held in rupee. Together, the states hold one-third of the total debt, and during the 'business as usual' situation, their debt levels will only soar further over the next five years.
"In a handful of states like Punjab and Himachal Pradesh, Debt-to-GDP ratio could increase by 50 per cent," Gupta said, adding that the states, which includes the most indebted ones, also don't face sustainability issues. This is further due to the implicit guarantee of the Centre and as states are not allowed to hold debt in foreign currency or floating rate.
Poonam also pointed out that the most indebted states are ironically better off, drawing a comparison between Punjab, one of the most indebted states, and Gujarat, which has low debt; the interest rate is similar for all and in fact states that are more indebted hold longer maturity and pay little premium.
"More prudent states need a better deal. They are de facto subsidizing the more indebted states. The Finance Commission may reward such states for their fiscal prudence, and incentivize the profligate ones to become fiscally more responsible," highlighted Gupta.
Participating in the discussion on 'States' Fiscal Challenges', M Govinda Rao, Councilor, Takshashila Institution, stated that the proliferation of subsidies for electoral gains is one of the noteworthy reasons for rising debt of the states.
Additionally, he also pointed to the Centre's overall responsibility of control of debt and stressed the need for an alternative approach. He said, "interest payments of profligate states are still taken as legitimate." Punjab, Himachal Pradesh and Bihar are top three most indebted states, while least indebted are Odisha, Maharashtra and Gujarat as of 2022-23.
