DOES FISCAL DEFICIT CROWD OUT PRIVATE CORPORATE SECTOR INVESTMENT IN INDIA?

Ranjan Kumar Mohanty ()
Additional contact information
Ranjan Kumar Mohanty: National Institute of Public Finance and Policy, New Delhi, 110067 India

The Singapore Economic Review (SER), 2019, vol. 64, issue 05, 1201-1224

Abstract: This paper examines the impact of fiscal deficit and its financing pattern on private corporate sector investment in India, for the period from 1970–1971 to 2012–2013. Using Autoregressive Distributed Lag (ARDL) Models, the study finds that fiscal deficit crowds out private investment both in the long run and in the short run. The results also show that internal (domestic) financing of fiscal deficit has significant negative impact on private investment but external (foreign) financing of fiscal deficit has insignificant effect. In the short run, availability of bank credit plays a more important role in investment decision making than the rate of interest in India. The study suggests that government should maintain the fiscal deficit within a sustainable level by reducing its unnecessary non-developmental expenditure, subsidies etc. The government should restructure its financing pattern of fiscal deficit since internal financing has a significant negative impact on private investment.

Keywords: Fiscal deficit; private investment; crowding out; autoregressive distributed lag models; bound testing approach (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590816500302
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:64:y:2019:i:05:n:s0217590816500302

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590816500302

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().