Meghalaya is in the fifth position among states in the country with high debt-to-GDP ratio.
According to a recent article in Forbes India magazine, Arunachal Pradesh tops the list with 53 per cent in the financial year 2023-24 followed by Punjab at 46.8 per cent, Nagaland at 41.6 per cent, Manipur at 40 per cent and Meghalaya at 39.9 per cent.
It also said that the states in India that have better debt-to-GDP ratios include Chhattisgarh at the top, followed by Karnataka, Maharashtra, Gujarat, and Odisha.
According to Forces India, states with higher GDPs tend to have lower debt-to-GDP ratios. “Prudent fiscal practices can lead to lower debt burdens,” it said.
The article said that the high debt-to-GDP ratio in Arunachal Pradesh, Nagaland, Manipur and Meghalaya is due to economic disparities, limited industrialisation, rugged terrain and sparse population.
“A high debt-to-GDP ratio signifies a state’s debt burden is substantial compared to its economic output. This indicates financial vulnerability and reduced fiscal flexibility. High debt levels can increase interest payments, crowding out other critical expenditures like healthcare and education. It may also raise concerns among investors and credit rating agencies, resulting in higher borrowing costs,” Forbes India said.
“The debt-to-GDP ratio of Indian states can increase due to several reasons, such as spending on infrastructure development, social welfare programmes, and public services, budget deficits when revenue generation is less than expenditure, economic shocks and unforeseen circumstances, political pressures leading to populist spending, limited revenue-raising powers of the state government,” it added.
According to Forbes India, by monitoring and managing debt-to-GDP ratio effectively, states can maintain long-term financial stability, ensure responsible fiscal management, and make informed economic policy choices. It also said that states must implement austerity measures, fiscal reforms, and debt reduction strategies to address the debt challenges effectively.
In order to improve the high debt-to-GDP ratio of Indian states, the article suggested fiscal discipline in order to deduce budget deficits to curtail debt accumulation, revenue enhancement to boost revenue through effective taxation policies, prudent borrowing by implementing responsible borrowing practices, debt restructuring in order to refinance existing debt to secure lower interest rates, economic growth by investing in productive sectors to stimulate GDP growth, enhanced creditworthiness to improve credit ratings, lower borrowing costs which will reduced interest payments and sustainable finances to ensure long-term fiscal stability.
