Much of Indian public finance research has focused on the level of debt and deficits. In this paper, we examine the structure of lenders to the Indian state. To what extent is this lending coerced? Is the present debt management strategy consistent with the objectives of low cost borrowing for the government in the long run, while preserving efficiency in the economy, and retaining the optionality of surging borrowing when faced with rare events? We find 5% of the lending to the Indian state comes from voluntary sources. While financial repression for banks eased /de jure' with a decline in the SLR from 33% in 1988 to 18% in 2021, lending to the state beyond regulatory requirements was Rs.30 trillion in 2021. Alongside this, the growth of the pension and insurance industries created new pools of assets where financial repression generated bountiful lending to the government. These facts help re-examine debt management strategy in India.
Citation:
Who lends to the Indian state?, Aneesha Chitgupi, Ajay Shah, Manish K. Singh, Susan Thomas and Harsh Vardhan, XKDR Working Paper 34, August 2024.
