General Government Expenditure and Economic Growth in India: 1980-81 to 2015-16

Abstract

The objective of this paper is to investigate the impact of General government expenditure on GDP growth in India for the period 1980-81 to 2015-16 by using Simple Regression Analysis. FDI Growth Rate and two dummy variables i.e. , one for financial crisis 2008 and another one for reform period 1991 have been used. All the explanatory variables are positively and significantly affecting the GDP growth rate except FDI Growth rate. The crisis period dummy shows that in post 2008 there was a negative and significant impact of general government expenditure on GDP growth rate. The reform period dummy shows that in post 1991 there was a positive and significant impact of general government expenditure on GDP growth rate. We have tested the multicollinearity test, which indicates presence of no serial correlation among the explanatory variables. We have also tested the autocorrelation, using the Breutch Pagan test, the results of which indicate the presence of no autocorrelation. The study further reveals that Non-development expenditures continue to be a large proportion of the general government expenditure. Expenditure management has to lay more emphasis on the design of the programme and the exploration of the alternatives. The authors suggest that there is a need to raise the development expenditure on infrastructure to achieve more economic growth. The study highlights that in addition to fiscal correction and consolidation, fiscal reform at the state level should focus on fixing ceilings on guarantees, taking into account the default and development probability, nature of guarantees issued, pricing of services rendered by the project for which guarantees are extended.