New Delhi: India has a significantly high public debt of almost 82% of its GDP, however, NCAER Director General Poonam Gupta stated that the country does not have a debt sustainability problem due to its high growth rate and larger proportion of local currency debt.
During a NCAER event, Gupta mentioned that India's elevated debt levels are currently manageable due to the country's increased real or nominal GDP and the fact that majority of the debt is denominated in rupees.
Gupta stated that the states collectively possess 33% of the overall debt, and under the current circumstances, their debt levels will continue rising for the next five years. Gupta mentioned that in certain states such as Punjab and Himachal Pradesh, the Debt-to-GDP ratio may rise by 50 percent. He also noted that even the states with the highest debt levels do not have sustainability concerns due to the implicit backing from the Centre and their inability to hold debt in foreign currency or floating rate.
Comparing Punjab, a highly indebted state, to Gujarat, a state with low debt, she noted that states with higher debt levels actually have an advantage, as the interest rates are consistent and more indebted states have longer maturity periods but pay lower premiums.
"More cautious governments require an improved agreement." They are effectively providing financial support to the states with higher levels of debt. Gupta stated that the Finance Commission could give incentives to states practicing good fiscal management and encourage others to be more financially responsible.
During the discussion on "States' Fiscal Challenges", M Govinda Rao, Councilor at Takshashila Institution, pointed out that the increasing debt of the states is partly due to the numerous subsidies given for electoral benefit.
He emphasized the Centre's key role in debt control and called for a new approach, noting that interest payments by financially irresponsible states are still considered acceptable.
As of 2022-23, Punjab, Himachal Pradesh, and Bihar have the highest levels of debt, whereas Odisha, Maharashtra, and Gujarat have the lowest levels of debt.
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