THE LONG-TERM RELATIONSHIP BETWEEN FISCAL DEFICIT AND ECONOMIC GROWTH IN INDIA

Abstract

This study investigates the long-term link between fiscal deficit and economic growth in the Indian economy, employing annual time-series data from 1991 to 2024, obtained from the Handbook of Statistics on the Indian Economy published by the Reserve Bank of India (RBI). The Augmented Dickey–Fuller (ADF) unit root test is utilized to evaluate the stationarity of the variables. The Autoregressive Distributed Lag (ARDL) bounds testing method is also used to figure out the long-term relationship because the variables have different orders of integration. The empirical data demonstrates that fiscal deficits have a long-term adverse and statistically significant effect on economic growth, indicating that enduring fiscal imbalances may impede India's potential for sustainable economic progress. The findings of this study include significant policy ramifications for macroeconomic stability and fiscal discipline within the Indian economy.