Abstract

Exceeding of govt. expenditure over its revenue collections, what economists call as fiscal deficit is most controversial economic instrument but at the same time is also most rampant in major economies of the world these days. The current study tries to figure out the impact of fiscal deficit on the most important economic variable namely economic growth in Indian context for the post reform period (1990-2019). The ARDL approach was used for analyzing the relationship keeping in view the unit root results. The study found the evidence in favor of Ricardian Equivalence by concluding that there does not exist any relationship between fiscal deficit and economic growth in India during the study period. However other control variables including exchange rate, gross capital formation, FDI and openness were found to have significantly positive impact on economic growth in the long run.

Key words: GDP Growth, Fiscal Deficit, ARDL, Ricardian Equivalence.