Abstract
The role of fiscal policy has been identified varying with respect to the nature of economic shocks as ensued in the form of fiscal expansion during the global financial crisis and fiscal consolidation in the sovereign debt crisis. Indian economic system has also experienced the similar phenomenon for last couple of years, but now moving towards fiscal consolidation amid the surmountable deficit. The study aims to highlight the contribution of components of public finance to the economic growth of different regions of India considering its states. It can provide useful information for devising the policies related to fiscal consolidation while holding the growth impetus of regions. Empirical results of the study suggest that both capital spending and private sector capital formation have significant positive impact on economic growth of Indian states. It is also found that revenue expenditure has negative influence on the economic growth. Further, the impact of revenue components-tax and non-tax is not found significant for the economic growth.
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