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Revisiting The Debt–Growth Nexus: Evidence From India

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  • Pratibha Saini
  • Krishna Muniyoor

Abstract

The main purpose of this study is to examine the debt–growth nexus in India over the period 1984–2019 using Bayer-Hanck and Autoregressive Distributed Lag (ARDL) cointegration techniques. The findings of both techniques suggest the existence of a negative relationship between public debt and economic growth in the long run. The results also confirm the significant negative relationship between foreign exchange reserves and economic growth. Interestingly, the test results confirm the unidirectional causality running from public debt to economic growth in the case of India. From a policy perspective, reducing public debt is imperative to achieve long-term sustainable growth. Efforts should be made to circumvent the burden of burgeoning interest liabilities by generating a primary surplus, which will facilitate debt servicing and timely repayment of debt.

Suggested Citation

  • Pratibha Saini & Krishna Muniyoor, 2021. "Revisiting The Debt–Growth Nexus: Evidence From India," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(231), pages 151-172, October –.
    • Handle: RePEc:beo:journl:v:66:y:2021:i:231:p:151-172
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    More about this item

    Keywords

    economic growth; public debt; foreign exchange reserve; Bayer-Hanck; ARDL; India;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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