Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q6. Examine the major causes behind the rising debt burden of Indian states in recent years. Outline a multi-dimensional strategy for ensuring fiscal sustainability at the state level. (10 M)
Difficulty Level: Medium
Reference: IE
Why the question
Rising debt burdens and increasing interest-payment liabilities among Indian states have raised concerns regarding fiscal sustainability, developmental expenditure and the long-term stability of cooperative fiscal federalism.
Key Demand of the question
The question requires examining the major structural and fiscal causes responsible for rising state debt in recent years and outlining a comprehensive strategy to ensure sustainable and resilient state finances.
Structure of the Answer:
Introduction
Briefly highlight the growing fiscal stress among states using recent debt and interest-payment trends and its significance for India’s economic governance.
Body
- Causes behind rising state debt: Mention factors such as welfare expenditure pressures, weak revenue mobilisation, GST-related constraints, rising interest burdens and off-budget borrowings.
- Strategy for fiscal sustainability: Suggest measures related to fiscal discipline, revenue augmentation, expenditure rationalisation, public sector reforms and cooperative fiscal federalism.
Conclusion
Emphasise that sustainable state finances are essential for maintaining developmental expenditure, macroeconomic stability and balanced federal governance in India.
