Journal article Open Access

Public Debt, Current Account Deficit and Economic Growth: A Study on Indian Context

Velmurugan. PS; Jyoti Ranjan Sahoo

Blue Eyes Intelligence Engineering and Sciences Publication(BEIESP)

External debt and internal debt form main components of the public debt structure in India. India’s debt profile shows increasing external debt and simultaneously increasing the deficit in current account which have impact on economic growth of India. Our study assesses the impact of India’s Gross External Debt (GED), Internal Debt (IND) and Current Account Deficit (CAD) on economic growth (GDP) by using time series data from 1998-99 to 2018-19. We intend to find long-run as well as short run relationship between the variables with the help of Eviews software. Stationarity of data is tested by considering Augmented Dickey-Fuller (ADF) test statistics and used Johansen Co-integration test and Vector Error Correction Model (VECM). The result shows co-integration among the variables with one equation. The result of VECM shows existence of long-run relationship among the variables. But the study fails to find the short-run causality among the variables. The results show external debt (GED), internal debt (IND), and Current Account Deficit (CAD) have negative and statistically insignificant relationship with GDP. It shows increase in public debt and deficit in current account results in decrease in GDP growth.

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