The Impact of International Remittances on Public Debt Sustainability in Kerala: Evidence from the FMOLS Approach

Remittances from Kerala’s migrant workers and professionals constitute a vital financial inflow, surpassing their relative significance in most other Indian states. With public debt nearing 60 % of NSDP, these transfers offer a potential buffer for debt sustainability. Applying Oates’ theory within Bohn’s debt-sustainability framework using an FMOLS model, and validated through Johansen testing, this study examines the remittance–debt nexus from 1980 to 2023. FMOLS results indicate a deterioration of debt sustainability despite substantial remittance inflows. The findings emphasize the need to reduce market borrowings, enhance the fiscal role of remittances, and promote policies supporting formal transfer channels, source diversification, remittance-linked investment, and financial literacy among migrant households to strengthen Kerala’s long-term fiscal resilience and enable more productive use of remittances.