The sustainability and the threshold level of public debt in Tamil Nadu is examined using the modern time series methods and threshold regression method. The results suggest that the current level of debt in the state is unsustainable, and the debt sustainability threshold is about 18.5%, which is slightly lower than the 20% norm set by the Fiscal Responsibility and Budget Management review committee for states. The state should control its debt as it is currently not growth-inducing. The simulation exercise based on the debt dynamics of the state suggests that the state economy should grow at 14% and fiscal deficit target should be 2% from 2023–24 onwards to attain the debt sustainability target in 2035–36 and with 16% growth the state could reach the target in 2030–31. The relevant policy strategy for the state is to increase its own revenue–GSDP ratio by 0.75% and contain its revenue expenditures by 0.75% from 2023–24.
