Construction of a Composite Indicator for Debt Sustainability Analysis

A Case of Sub-nationals in India




The size of fiscal deficits and sustainability of public debt levels remain a key macroeconomic policy problem in all emerging economies following the global financial crisis of 2008-09. In addition, the COVID-19 pandemic poses a considerable challenge to fiscal sustainability in developed and developing countries. Although the sustainability of public finances has been discussed for more than a century and studies have proposed several methods to define and assess debt sustainability, it remains an imprecise concept. This study proposes a new framework for public debt sustainability analysis by constructing a composite indicator, that is, a debt sustainability index. We emphasise the need for an explicit conceptual framework for constructing a composite index and usefulness of multivariate statistical analysis prior to the aggregation of individual indicators. The proposed approach can be used to analyse the debt sustainability of state governments (sub-nationals) in India.


Composite Indicator, Debt Sustainability Analysis, Principal Components and Factor Analysis, Sub-sovereign Debt


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Authors Bio

Purnendu Kumar, Reserve Bank of India

Purnendu Kumar is the Director, Department of Statistics and Information Management, RBI, Mumbai, Maharashtra

Rahul Thekkedath, Reserve Bank of India

Rahul Thekkedath is an Assistant Adviser, Department of Statistics and Information Management, RBI, Thiruvananthapuram, Kerala

Nanu Ram Meena, Government of India

Nanu Ram Meena is the Deputy Director, Public Debt Management Cell, Ministry of Finance, Government of India, New Delhi


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