
Contents
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2.1 Introduction 2.1 Introduction
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2.2 Literature Review 2.2 Literature Review
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2.2.1 Theoretical Views 2.2.1 Theoretical Views
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2.2.2 Empirical Models 2.2.2 Empirical Models
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2.2.3 Empirical Studies 2.2.3 Empirical Studies
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2.3 Sources and Causes of Public Debt 2.3 Sources and Causes of Public Debt
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2.4 Public Debt in India 2.4 Public Debt in India
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2.5 Empirical Tests for Debt Sustainability 2.5 Empirical Tests for Debt Sustainability
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2.5.1 Unit Root Test 2.5.1 Unit Root Test
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2.5.2 Cointegration Test 2.5.2 Cointegration Test
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2.5.3 Bohn Model-Based Nonlinear Test 2.5.3 Bohn Model-Based Nonlinear Test
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2.6 Estimating Debt Sustainability Threshold 2.6 Estimating Debt Sustainability Threshold
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2.7 Examining Debt–Growth Relationship and Debt Threshold 2.7 Examining Debt–Growth Relationship and Debt Threshold
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2.8 Simulation Model Examining the Period of Attaining the Debt Threshold Target 2.8 Simulation Model Examining the Period of Attaining the Debt Threshold Target
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2.9 Strategies to Control Debt and Reach a Sustainable Level 2.9 Strategies to Control Debt and Reach a Sustainable Level
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References References
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2 Sustainability of Public Debt in India: An Economic Perspective
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Published:August 2024
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Abstract
This chapter explains the economic perspective of the sustainability of combined public debt of centre and state governments in India, and reviews the theoretical and empirical literature on the topic. It also presents public debt trends in India. Using statistical approaches and the threshold regression method, it shows that the current level of debt is unsustainable. Econometric estimates reveal that the debt sustainability threshold for India is 61.6 per cent, and that a higher level of debt can be growth-reducing. The simulation exercises based on debt dynamics suggest that India should grow at 11 per cent or above and the fiscal deficit target should be 2 per cent each for the centre and all states to obtain sustainable debt by 2028–29.
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