Abstract
The major objective of the study is to examine the impact of fiscal deficit on economic growth in India using Autoregressive Distributed Lag (ARDL) approach. It also analyzes whether the execution of Fiscal Responsibility and Budget Management (FRBM) Act has any influence on the fiscal deficit-economic growth linkage in India. The ARDL Bounds Testing Approaches to Cointegration confirm the long-run relationship among the selected variables. The estimated results show that fiscal deficit has an adverse effect on economic growth in both the long run and short run in India. The Pre-FRBM Act regime analysis reveals that implementation of FRBM Act has influenced and weakens the relationship between fiscal deficit and economic growth in India. The Government should contain the fiscal deficit and should try to achieve the target set by the FRBM Act.
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