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Designing Medium-Term Debt Management Strategy (MTDS) for Subnational Debt Management in India

Author

Listed:
  • Nayak, Dinesh Kumar

    (National Institute of Public Finance and Policy)

  • Jena, Pratap Ranjan

    (National Institute of Public Finance and Policy)

Abstract

Post-COVID, Indian states have moved from crisis to recovery with moderating revenue and fiscal deficit, yet debt-to-GSDP ratios remain elevated at 28 30 percent. While state-level fiscal architecture is anchored in the FRBM Acts, no state has adopted a formal Medium-Term Debt Management Strategy (MTDS). This paper addresses that gap by designing an MTDS aligned with IMF World Bank best practices, applicable to Indian states. Using Goa as a case study, we decompose changes in the debt-to-GSDP ratio into three drivers: the interest growth differential, the primary balance, and stock flow adjustments. We then evaluate alternative borrowing strategies under multiple macroeconomic scenarios through a structured cost-risk framework. The results demonstrate that a cost-minimising combination of maturity diversification and prudent debt composition can support compliance with fiscal rules over the medium term. Institutional and governance dimensions are assessed using the PEFA and DeMPA diagnostic tools, revealing the need for dedicated debt management units within state governments. By aligning statutory fiscal rules with forward-looking debt strategies, the study offers a replicable template for strengthening fiscal sustainability, transparency, and risk management across Indian states.

Suggested Citation

  • Nayak, Dinesh Kumar & Jena, Pratap Ranjan, 2026. "Designing Medium-Term Debt Management Strategy (MTDS) for Subnational Debt Management in India," Working Papers 26/448, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:26/448
    Note: Working Paper 448, 2026
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    References listed on IDEAS

    as
    1. Nayak, Dinesh Kumar & Jena, Pratap Ranjan, 2025. "Bridging the Budget Divide: How PEFA Assessments and PFM Reforms Diagnose the Budget Reliability," Working Papers 25/435, National Institute of Public Finance and Policy.
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    3. Graeme Wheeler, 2004. "Sound Practice in Government Debt Management," World Bank Publications - Books, The World Bank Group, number 15017, April.
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    7. Togo, Eriko, 2007. "Coordinating public debt management with fiscal and monetary policies : an analytical framework," Policy Research Working Paper Series 4369, The World Bank.
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    Keywords

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    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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