Fiscal rules and debt dynamics in India

Using an accounting framework, I examine the evolution of national and sub-national public debt in India from 1981 to 2017, with reference to the FRBM Review Committee Report, which stipulates the debt targets at 60% and 20%, respectively. I find that a larger share of debt movement is explained by changes in interest rate, growth and inflation, than by accumulation of new debt, for both national and sub-national debt. Simulations show that a strict perusal of the debt targets will force the government to run surpluses, while relaxing the targets generates fiscal space up to 4% of the GDP.