India was an outlier on fiscal outcomes pre-pandemic, before drifting further in the high debt direction during COVID. High levels of debt limit the resources available for other priorities such as health, education and climate change abatement. At the same time, there is no immediate crisis of debt sustainability: institutional factors limit rollover risk, and interest rates have not risen with additional debt issuance. But financial stability and sustainability risks may arise in the future, and lack of resources to meet pressing needs is a drag on growth. Consolidation would require lower primary deficits achieved through tax revenue generation and privatization, all while protecting and prospectively increasing capital spending. Contingent liabilities pose risks to the public finances of the States and should be minimized by fiscal-management reforms. As their debt manager, the RBI should allow States to face the market interest rates warranted by current and projected debt levels. Financial Commissions should be strengthened so as to provide stronger incentives for prudence.
Barry Eichengreen is George C. Pardee and Helen N. Pardee Chair and Distinguished Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987. He is a Research Associate of the National Bureau of Economic Research (Cambridge, Massachusetts) and Research Fellow of the Centre for Economic... Read More
Poonam Gupta is the Director General of NCAER, and a member of the Economic Advisory Council to the Prime Minister of India. Before joining NCAER, she was the Lead Economist for Global Macro and Market Research at the International Finance Corporation and a Lead Economist for India at the World Bank. Prior to that, she was the Reserve... Read More
Ayesha Ahmed is working at NCAER as a Research Associate. While her interests are eclectic, she is most interested in working on issues related to macro-economics, international trade, public finance, inflation, and monetary policy. She has a Bachelor’s degree in Economics from Miranda House and a Master’s Degree in Economics from the Delhi School of... Read More