Budget Multipliers, Fiscal Consolidation and Growth in India

This study specifically concentrates on the dynamic impacts of fiscal policy on GDP growth rate by estimating and analysing the fiscal multipliers in the Indian context. A SVAR analysis is applied to estimate the budget multipliers for India. The negative values of multipliers for revenue and non-developmental expenditures clearly indicate the existence of dynamic fiscal feedback structure that can adversely affect the economic growth. Strong persistent fiscal adjustment in the favour of developmental and capital expenditures will augment the economic growth. This will also reinforce the idea of fiscal consolidation. The multiplier simulated for steady rate of growth suggests that the continuous and persistent increase in the rate of expenditures should be in line with those expenditures which have positive multiplier