FISCAL DEFICIT'S INFLUENCE ON ECONOMIC GROWTH IN THE INDIAN CONTEXT

Abstract

This study investigates the relationship between fiscal deficit and economic growth in the Indian context during the fiscal years 2019-20 to 2021-22. Employing a regression model, the analysis sought to assess the impact of fiscal deficit on India's economic growth. Surprisingly, the results of the regression model indicate no significant direct impact of fiscal deficit on the Indian economy during this specific period. However, it is important to interpret these findings within a broader context. The connection between fiscal deficit and economic growth is intricate and influenced by various factors, such as global economic conditions, monetary policies, external variables, and structural reforms. The absence of a direct impact does not negate the importance of prudent fiscal management, as fiscal deficits can have detrimental effects on economic stability, including inflation, high interest rates, and crowding out of private investment. Consequently, this study underscores the need for a balanced approach to fiscal management in India, emphasizing fiscal discipline, efficient public spending, revenue enhancement, and prioritizing investments in sectors that drive economic growth. While the study indicates no straightforward linear relationship between fiscal deficits and growth in the short term, it underscores the role of fiscal management in shaping India's economic landscape over time. This research provides valuable insights into the complex interplay between fiscal deficits and economic growth, advocating for continued exploration of this relationship in future studies and policy considerations. Effective fiscal management and strategic fiscal policies remain essential for India's sustained economic development and stability.