Policy Implications of Fiscal Deficit and Its Trends in India: An Econometric Analysis

Abstract

"The paper attempted to explore the trend of fiscal deficit in India from 1993-94 to 2022-23 and also to determine whether the growth patterns of fiscal deficit have changed before and after the Housing Bubble Crisis of 2008. The study too made an effort to analyse the causality among fiscal deficit, government revenue and expenditure in India. Therefore, the paper follows a diagnostic research design, and is based on secondary data, collected from the Budget and finance documents of the Government of India. Econometrics tools including eight different regression models and CAGR (Compound Annual Growth Rate) were used. And the study revealed that the fiscal deficit follows a log-linear trend, and as per the VDA (Variance Decomposition Analysis) model in the long run the variability of fiscal deficit is explained by 66.09% of govt. expenditure, for the sample period. Thus, the study recommends to efficiently utilise the govt. expenditure to have a proper management of the fiscal deficit in India."