Abstract:-

The Indian Government adopted a dual strategy of large welfare schemes, along with high capex in hard and soft infrastructure to exit from the pandemic led turmoil and set the economic growth momentum to a steady revival path. As a part of the capex based macroeconomic policies, budgets 2023-24 and 2024-25 provided the states 50 years interest free loans on account of capital expenditure to revive and boost their long run growth rates. The FRBM Act 2003, amended vide the Finance Act 2018 allowed states to hold public debt by 20% of GDP, while the 15th Finance Commission recommended an additional borrowing limit of 3.0% for states from 2023-24 to 2025-26, with an extra borrowing of 0.5% related to power sector reforms. Given this background, it is important to understand how increase in public debt affects economic growth in the Indian states, taking into account the sustainability condition of their debt dynamics for stimulating growth along with effective management of public debt. The present study attempts to provide insights in this regard.