The Effect of Fiscal Deficit and Primary Fiscal Deficit on Economic Growth in India

Abstract:

This paper examines the impact of fiscal deficit (FD) and primary fiscal deficit (PFD) on India's economic growth, focusing on data from 1970-71 to 2022-23. The paper explores the trends, empirical relationships, and the role of these deficits in shaping macroeconomic stability. Descriptive statistics reveal significant fluctuations in both deficits, especially during periods of economic crises such as the global financial crisis and COVID-19 pandemic. The regression analysis indicates a strong, statistically significant relationship between the fiscal deficit, primary fiscal deficit, and economic growth, with an R-squared value of 0.9955. The results suggest that while fiscal deficits may stimulate economic growth through increased government expenditure. The study concludes that effective fiscal management, including reducing the primary fiscal deficit, is essential for sustainable economic growth and fiscal discipline in India.