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Public Debt in India: A Security Level Analysis

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  • DAS, PIYALI
  • Ghate, Chetan

Abstract

We assemble a novel data-set on Indian public debt that contains consistently defined aggregate annual components from 1951-2018, and Centre-State security level data from 2000-2018. Using a standard debt-decomposition framework, we quantify the extent to which inflation, real GDP growth, nominal interest rates and the primary deficit/surplus explain Indian debt-dynamics. We show that inflation's contribution to lowering public debt has been substantial over time. We also undertake a Hall-Sargent(1997, 2011) style debt-decomposition using all outstanding Centre and State securities from 2000-2018. We show that nominal returns on the marketable and non-marketable portions of the Centre's debt account for the highest contribution in explaining the change in public debt. We show that while the adoption of flexible inflation targeting has diminished the role of inflation in debt liquidation, the large contribution of nominal returns pose a challenge to debt management.

Suggested Citation

  • DAS, PIYALI & Ghate, Chetan, 2020. "Public Debt in India: A Security Level Analysis," MPRA Paper 103746, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103746
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    References listed on IDEAS

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    1. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    2. George J. Hall & Thomas J. Sargent, 2011. "Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 192-214, July.
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    4. Mohanty, Ranjan Kumar & Panda, Sidheswar, 2019. "How Does Public Debt affect the Indian Macroeconomy? A Structural VAR Approach," Working Papers 19/250, National Institute of Public Finance and Policy.
    5. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    6. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 291-333.
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    More about this item

    Keywords

    Public Debt; Debt Decomposition; Macro-finance; Debt Sustainability; Debt Liquidation; Fiscal Dominance; Indian Economy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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