Measurement of Fiscal and Debt Sustainability of Kerala – An Alternative Approach

The ability of a Government to sustain expenditure with its own resources without threatening solvency is of prime importance. The fiscal management in sub-national Government in India has seen periodic fluctuations with period of high fiscal distress during the later period of 1980’s to 2003-04. It was followed by a period of fiscal reforms, and again distress due to macroeconomic slowdown. This study attempts to analyse the structural fiscal problems and fiscal management of the state governments based on the long-term behaviour of major fiscal variables during the last 36 years. The sustainability of the sub-national government over this time period has been studied based on existing models and through an alternative model. In addition, the impact of fiscal targets on state’s development expenditure in a developing country like India has been analysed.