Profit from Knowledge

Profit from Knowledge

Monday, March 21, 2016

Debt not bad if economic growth follows

Debt not bad if economic growth follows
Debt, per se, is not bad, if the state’s economic growth can sustain and service it. So, the key matrix to check is the debt as a percentage of the state’s gross domestic product (GSDP) or total economic output.

West Bengal, Punjab and Uttar Pradesh have the highest debt-to-GSDP ratios.

The good news over the past five years is that the debt-to-GSDP ratio for all the states has come down from 25.5% to 21.2%.

In West Bengal, despite the increase in outstanding liabilities, the debt-to-GSDP ratio has declined, which means the state’s GDP is growing at a fast clip.

That cannot be said for Andhra Pradesh. The state has seen a 78% increase in outstanding liabilities but its debt-to-GSDP ratio is constant at 25%. The debt-to-GSDP ratio was lowest in 2012 at 22.5%.

Maharashtra has the highest outstanding liabilities but does not feature among the top 10 states with high debt-to-GSDP ratio. The debt-to-GSDP ratio for Maharashtra at 20.2% is lower than the national average of 21.2%.

Similarly, although Tamil Nadu is fast adding debt, its debt-to-GSDP ratio at 20% is lower than the national average. This shows that the state’s GSDP is growing despite the high growth in debt.

source of this information

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