| Abstract: |
This paper examines the relationship between India’s fiscal deficit and real GDP growth using recent official fiscal-year data around the pandemic and the subsequent consolidation phase (FY2020-21 to FY2024-25). India’s fiscal deficit widened sharply during the COVID-19 shock and then declined steadily as revenues improved and expenditure composition shifted toward higher capital outlay. Using a small-sample empirical strategy (illustrative OLS), we explore whether higher fiscal deficits are associated with higher or lower growth over this period. The trend evidence shows (i) a steep deficit spike alongside a deep output contraction in FY2020-21, followed by (ii) a strong rebound with still-elevated deficits, and (iii) continued deficit reduction while growth remained robust but moderated. A simple regression fit suggests a negative association between fiscal deficit (% of GDP) and real GDP growth in this narrow sample, largely reflecting the crisis year’s joint deterioration in deficit and growth. The findings highlight the importance of distinguishing counter-cyclical emergency deficits from structural deficits, and the need for richer time-series and controls to establish causal effects. |
