Public debt and economic growth nexus in India: an empirical investigation

Many countries, particularly developing nations have continued to witness increasing debt profile since the world economic recession of 2007; the Indian case is not an exception. The nature of effect the increasing debt profile has on the economic growth of India forms the crux of this study. The study employed the Augmented Dickey Fuller (ADF) test for unit root to test stationarity of the data, and all the variables were found to be integrated of order one. Johansen cointegration test was applied to examine whether the variables are cointegrated or not, findings of the test shows the presence of long run association between the variables. The Vector Error Correction Model (VECM) was employed to examine the long run and short run relationship among the variables. Long run estimates showed the presence of a positive and significant relationship between Internal Debt, external Debt and Investment with GDP, while the relationship between Debt Servicing and GDP was found to be significantly negative. In the short run, Internal Debt, External Debt and Debt Servicing exhibited a negative impact on GDP, while Investment was found to be having a positive relationship with GDP.