An Interstate Analysis of the Economic Impact of Public Expenditure in India from 1990-91 to 2018-19

Abstract

The study is an attempt to analyse the impact of public expenditure viz. revenue expenditure and capital outlay on the economic growth using panel dataset for 24 Indian states for the period from 1990-91 to 2018-19 in the presence of several control variables such as initial level of physical capital, initial level of human capital, credit-deposit ratio of the scheduled commercial banks according to the place of utilisation and a dummy variable for the north-eastern states. OLS (Ordinary Least Square) Regression and RE (Random Effect) GLS (Generalised Least Square) Regression models have been used for statistical analysis of the impact of public expenditure on growth.  The study found positive and significant impact of initial level of physical capital on per capita GSDP, positive but insignificant impact of initial level of human capital on per capita GSDP, positive and significant relationship between credit-deposit ratio and GSDP per capita and growth-distorting impacts in north-eastern and hilly states.  The revenue expenditure elasticity of per capita GSDP was found to be 0.92 while capital outlay elasticity of per capita GSDP was found to be 0.51 using RE-GLS regression.