States' Debt and Debt Relief

The deterioration in the fiscal performance of the states since the mid-1980s is reflected in all major indicators, viz, fiscal deficit, revenue deficit and debt-GDP ratio. In this paper, a baseline scenario is generated under some assumptions to ascertain the dimensions of fiscal balance at present, and the likely trends in the medium term. Three sets of alternative policy scenarios are also generated, by superimposing alternative assumptions over the baseline scenario, to assess and prescribe policy initiatives. It is inferred that lowering the primary deficit, besides a reduction in interest rates, should be an integral part of any policy to make debt sustainable at the state level. An immediate focus of the fiscal reforms should be on achieving revenue balance or, at least reducing its imbalance.