The Fiscal–Growth Nexus in India: Fiscal Deficit, Revenue Deficit and Capital Expenditure (1980–2023)
Asian Journal of Economics, Business and Accounting · pp. 446–460 · Published 16 Dec 2025
10.9734/ajeba/2025/v25i122104Abstract
This study examines the contested fiscal–growth nexus in India (1980–2023), motivated by persistent empirical divergence and major fiscal regime shifts. Using ARDL bounds testing with unit-root and Bai–Perron structural-break analyses, and disaggregating fiscal indicators, the paper shows fiscal deficits boost GDP in the short run while revenue deficits depress growth; capital expenditure produces short-run adjustment costs likely due to implementation lags. No stable long-run cointegration is found, largely because structural breaks (notably 2004 and 2016) alter fiscal dynamics. Novelty lies in combining ARDL with break tests and separate deficit measures over an extended data. Policy implications stress minimizing revenue deficits, improving capital expenditure productivity, and preserving countercyclical fiscal space.
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