Public debt management (PDM) is the process of designing and implementing a strategy for managing the government’s debt in order to raise the required amount of funding, achieve its risk and cost objectives, and meet any other debt management goals.
Some of the primary concerns associated with PDM in India are:
High Debt-to-GDP Ratio
Rising Interest Payments
Debt Sustainability Challenges
Lack of a Public Debt Management Agency
Some of the possible measures to address the concerns of public debt management in India are:
Fiscal Consolidation
Revenue Mobilization
Expenditure Efficiency
Asset Monetisation and Privatisation
Public Debt Management Agency
The Fifteenth Finance Commission has designed the tax transfer formula based on population (15%), area (15%), income distance (45%), demographic transition (12.5%), forest and ecology (10%) and tax effort (2.5%).
The weightage given to the distance of per capita income in the Finance Commission tax transfer formula adversely affects growing States, including Kerala.
This leads to the debate on equity versus efficiency principles of intergovernmental fiscal transfers. If economic convergence (poor States catching up with the rich States) is a prime concern of Union Finance Commissions, giving weightage to the distance criterion is valued.
Kerala, had filed a suit in the Supreme Court of India against the Centre’s decision on the net borrowing ceiling of States
Over the years, the share of Union Finance Commission tax transfers has declined for a few States, including Kerala.
The inter se State share of Kerala in the Finance Commission transfers (which was 2.341% in the Thirteenth Finance Commission, and which increased to 2.5% in the Fourteenth Finance Commission) declined to 1.925% in the Fifteenth Finance Commission.
In the post-COVID-19 pandemic fiscal strategy, the fiscal deficit to GDP is envisaged as 3.5% for States, with 0.5% tied to power sector reforms and the general government public debt to GDP at 60% and central government debt at 40%.
The outstanding liabilities of Kerala are 36.9 percentage of GSDP as per 2024-25 (BE). However, the roll-over risk is not there as around 16% debt of Kerala has a maturity period within 2025.
Way Forward
Investing in a green resilient and knowledge-based economy is crucial for sustainable economic development of the State
Judicious bargaining with the Finance Commission relating to magnitude and criteria (with weightage decisions) is key to ensuring the progressivity of fiscal transfers to the State.
There needs to be a negotiation with the Sixteenth Finance Commission for specific-purpose transfers to tackle State-specific issues such as demographic transition, inward and outward migration and climate change crisis.
COMMENTS