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Causal Nexus between Public Debt and Economic Growth of India: A Time Series Analysis

Dr, Rekha, Dr Dev Karan

Abstract

The Public debt paper aims to investigate the critical topic of the "cause-effect" relationship and economic growth for the Indian economy from 1991 to 2022. The statistical description offers proof that there is ambiguity and inconclusiveness regarding the causal relationship between these variables. The systematic time series econometrics approach is used to examine the impact of Gross Domestic Product (GDP) on India's public debt across the study period. The unit root test, cointegration test, and error correction model (ECM) were used to validate the stationary of the variables, identify the number of cointegration equations between the variables, and assess the pace of adjustment from short-run to long-run equilibrium. The findings show that the composition of public debt has a considerable impact on GDP: domestic debt has a negative short-term impact, but external debt has a positive short-term effect. This indicates that careful examination of loan sources is critical. The presence of cointegration between GDP and public debt indicates a stable, long-term relationship in which both variables tend to move together over time, emphasizing the necessity of long-term fiscal sustainability.

Keywords

Public debt Domestic debt External debt Economic Growth

References

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