Have you ever wondered why some states in India seem to be doing better than others? One of the factors is their debt-to-GDP ratio. In this article, we explore the reasons behind their varying degrees from state to state
The debt-to-GDP ratio of India is a fundamental economic metric in assessing India’s ability to manage its debt burden and overall economic well-being. However, the debt-to-GDP ratio of India as a whole doesn't provide a complete picture of the economic well-being of individual states or regions within the country. This is where the debt-to-GDP ratio of Indian states reflects each state's specific financial situation and policies.
The debt-to-GDP ratio of Indian states is calculated by dividing the total outstanding debt of a specific state by its Gross Domestic Product (GDP) and multiplying by 100 to express it as a percentage. Here's the formula:
Debt-to-GDP Ratio for States = (Total State Debt / State GDP) * 100
State | Debt-to-GDP (%) in FY 2023-24 |
GSDP (Rs Lakh Crore) (FY 2023-24) |
---|---|---|
Arunachal Pradesh | 53 | 0.37 |
Punjab | 46.8 | 6.98 |
Nagaland | 41.6 | 0.37 |
Manipur | 40 | 0.45 |
Meghalaya | 39.9 | 0.46 |
Himachal Pradesh | 39 | 2.14 |
Bihar | 35.7 | 8.59 |
Mizoram | 37.8 | 0.35 |
West Bengal | 37.1 | 17.19 |
Rajasthan | 36.8 | 15.7 |
Kerala | 36.6 | 11.3 |
Andhra Pradesh | 33.3 | 14.49 |
Goa | 32.2 | 1 |
Uttar Pradesh | 31.7 | 24.39 |
Sikkim | 31.5 | 0.42 |
Madhya Pradesh | 30.4 | 13.87 |
Uttarakhand | 28.2 | 3.33 |
Jharkhand | 27 | 4.23 |
Tamil Nadu | 25.6 | 28.3 |
Haryana | 25.5 | 2.96 |
Assam | 24.4 | 5.67 |
Telangana | 23.8 | 14 |
Chattisgarh | 25.0 | 5.07 |
Karnataka | 23 | 25 |
Maharashtra | 18.2 | 38.79 |
Gujarat | 15.3 | 25.62 |
Odisha | 13.1 | 8.65 |
GDP and Debt to GDP data are sourced from PRS Legislative Research and compiled by Forbes India based on 2023-24 budget estimates
The debt-to-GDP ratio of Indian states can increase due to several reasons, such as:
Due to these circumstances, debt accumulation arises to bridge fiscal gaps, stimulate growth, and address the diverse demands of India's vast population.
Overall, the state-wise debt in India varies due to the following reasons-
As we saw in the table above, Indian states with a high debt-to-GDP ratio include Arunachal Pradesh at the top, followed by Punjab, Nagaland, Manipur and Meghalaya.
This is because of factors such as:
Conversely, the states in India that have better debt-to-GDP ratios include Chhattisgarh at the top, followed by Karnataka, Maharashtra, Gujarat, and Odisha. This is because of factors such as:
A high debt-to-GDP ratio signifies a state's debt burden is substantial compared to its economic output. This indicates financial vulnerability and reduced fiscal flexibility. High debt levels can increase interest payments, crowding out other critical expenditures like healthcare and education. It may also raise concerns among investors and credit rating agencies, resulting in higher borrowing costs.
States with elevated debt levels face several challenges:
States must implement austerity measures, fiscal reforms, and debt reduction strategies to address these challenges effectively.
In the past, how have states with increasing debt-to-GDP ratios dealt with arising issues? Let’s look at some examples:
Despite Kerala’s commendable social and human development indicators, Kerala has one of the highest debt-to-GDP ratios among Indian states, mainly due to heavy spending on social welfare programs and infrastructure investments. This elevated debt level has increased interest payments, constraining budget allocations for critical services. Kerala implemented policy measures such as fiscal consolidation, revenue enhancement through taxes and non-tax revenue sources, and austerity measures to tackle this issue.
After Arunachal Pradesh, Punjab has the highest state-wise debt in India. The reasons include excessive spending on agriculture subsidies, pension obligations, and infrastructure development. This put immense pressure on the state's finances, reducing education and healthcare funds. Punjab initiated policy measures to address this challenge, including the Punjab Fiscal Responsibility and Budget Management Act, to curb fiscal deficits and limit debt accumulation. The state also sought to diversify its revenue sources, enhance tax collection, and rationalise subsidies.
Debt sustainability refers to a government's ability to meet debt obligations without risking a financial crisis. Effective debt management means lowering the debt-to-GDP ratio of Indian states and involves controlling borrowing, optimising debt structure, and ensuring funds are used efficiently.
Strategies to improve the high debt-to-GDP ratio of Indian states include: