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Impact of public debt on economic growth: a case study of Jammu and Kashmir

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Abstract

Jammu and Kashmir is an ex-special category state that has traditionally stressed fiscal health, relying on central transfers and debt. The rising debt burden on India's subnational economy has become a burning issue and target of fiscal policy after the Covid-19. Thus, the current research attempts to evaluate the influence of debt on economic development and to assess the sustainability of the state's expanding public debt from 1991 to 2021.Two major research questions have been posed in the article, the first being estimating the sustainability of the total outstanding liabilities of Jammu and Kashmir, which will be followed by modeling the relationship between total liabilities, interest receipts, gross capital formation and economic growth. To estimate the long-run relationship between total liabilities and economic growth of Jammu and Kashmir ARDL (Autoregressive Distributive Lag) model has been used based on the stationarity of the data, where some variables were integrated of order 1 and some variables were integrated at the level. The Domar’s debt sustainability model has been estimated to understand the economic sustainability of debts. Empirical analysis indicates that Jammu and Kashmir has much higher Debt to GSDP ratio than national average. Debt serving or interest payment to Revenue Receipts ratio has declined constantly over the period of time from 24% in 1992 to merely 5% in 2020, which marks a drastic improved performance. The study finds that both public debt and debt-servicing burden have a negative and significant impact on per-capita income in both short-run and long-run. The Domar’s debt sustainability analysis indicates that the state has unsustainable debts in early 2000s however after the implementation of FRBM act the sustainability was restored. The bifurcation of the state in two union territories and Covid-19 pandemic has resulted in unattainability of debt in Jammu and Kashmir from 2018 to 2021.

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Fig. 1

Source: MOSPI State Debt statistics 2022

Fig. 2

Source: RBI Handbook of Statistics of State Finances

Fig. 3

Source: Authors’ computation

Fig. 4

Source: Authors Own Computation

Fig. 5

Source: Authors Own Computation

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Data availability statement

I Mohd Yousuf Malik assure that the on the request of the revivers the data of the corresponding paper will be made available. I also testify that the data has been collected from the secondary sources like RBI state statistics documents and budget document of Jammu and Kashmir. I also testify that the all the sources of data have been accredited in the paper.

Notes

  1. The Centre government in India grants special category status to states that have hilly terrain, a low population density, or a sizable tribal population, a strategic location along borders with neighboring countries, and economic and infrastructure backwardness. This categorization was based on the Gadgil formula's suggestions. The SCS criteria are as follows: the Centre pays 90% of the funds necessary under a centrally-sponsored plan to special category status states, compared to 60% or 75% in other states, with the remaining amounts contributed by state governments.

  2. The erstwhile special category state Jammu and Kashmir was bifurcated into two Union Territories, Jammu & Kashmir and Ladakh, on 31 October 2019.

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Acknowledgements

I Mohd Yousuf Malik acknowledge that there are no funding sources of the article titled Impact of Public Debt on Economic Growth: A Case Study of Jammu and Kashmir. The research has been carried without any funding source. The authors whose names are listed immediately below certify that they have NO affiliations with or involvement in any organization or entity with any financial interest (such as honoraria; educational grants; participation in speakers’ bureaus; membership, employment, consultancies, stock ownership, or other equity interest; and expert testimony or patent-licensing arrangements), or non-financial interest (such as personal or professional relationships, affiliations, knowledge or beliefs) in the subject matter or materials discussed in this manuscript.

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  1. National PG College, University of Lucknow, Lucknow, Uttar Pradesh, India

    Mohd Yousuf Malik

  2. Department of Economics, University of Lucknow, Lucknow, Uttar Pradesh, India

    M. K. Agarwal

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There are currently two authors listed in the paper, the first author is the principal author ho has given the original idea to work on this problem and prepared manuscript. The 2nd author is my PhD Supervisor who has helped in revision and Proof Reading.

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Hereby, I Dr. M Yousuf Malik consciously assures that for the manuscript impact of Public Debt on Economic Growth: A Case Study of Jammu and Kashmir the following is fulfilled: (1) This material is the authors' own original work, which has not been previously published elsewhere. (2) The paper is not currently being considered for publication elsewhere. (3) The paper reflects the author's own research and analysis in a truthful and complete manner. (4) The paper properly credits the meaningful contributions of co-authors and co-researchers. (5) The results are appropriately placed in the context of prior and existing research. (6) All sources used are properly disclosed (correct citation). Literally copying of text must be indicated as such by using quotation marks and giving proper reference. (7) All authors have been personally and actively involved in substantial work leading to the paper, and will take public responsibility for its content. The violation of the Ethical Statement rules may result in severe consequences. I agree with the above statements and declare that this submission follows the policies of Solid State Ionics as outlined in the Guide for Authors and in the Ethical Statement.

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Malik, M.Y., Agarwal, M.K. Impact of public debt on economic growth: a case study of Jammu and Kashmir. SN Bus Econ 3, 124 (2023). https://doi.org/10.1007/s43546-023-00505-5

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