Title: Estimating an optimal debt/GDP ratio: an empirical investigation for Indian states

Authors: Varun Chotia

Addresses: Jaipuria Institute of Management, Jaipur Campus, Jaipur, Rajasthan, 302033, India

Abstract: The objective of this study is to get an insight into the debt scenario of different states of India and understand the factors governing it, thereby estimating an optimal debt/GDP ratio for each of them. The study begins with estimating the trend for optimal debt and plotting it parallel to the actual debt for each Indian state for the time period from 2002-2003 to 2014-2015. Modified Blanchard (1983) model was employed for estimating optimal debt/GDP ratio. The results display notable difference between optimal debt/GDP ratios and actual debt/GDP ratios for almost all Indian states. In states where debt/GDP ratio is rising constantly, the governments should aim at achieving a balance between anchoring debt sustainability and high growth yield in the long run. For states where actual debt/GDP ratio is below the optimal level, policy focus should be on providing cushion against external financial crisis and market shocks.

Keywords: optimal debt/GDP; debt sustainability; economic growth; Indian states.

DOI: 10.1504/IJPSPM.2021.114595

International Journal of Public Sector Performance Management, 2021 Vol.7 No.3, pp.410 - 434

Received: 22 Mar 2019
Accepted: 09 Jul 2019
Published online: 28 Apr 2021 *

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