Is Public Debt a Burden for India?

Abstract

In this paper, we investigated whether the government debt caused a burden for India over the period 1970–2013. We achieved this goal using Bohn's (1998) hypothesis in a structural VAR framework. This study did not find evidence to support Bohn's hypothesis in the context of India because no statistically significant relationship between public debt and gross primary deficit was found. Second, this study observed a positive response of interest payments due to the shock of public debt, which is not surprising. Third, a positive shock of public debt was statistically significant and negatively affected developmental expenditure. Similarly, interest payments negatively affected the gross primary deficit. We concluded that public debt in India was not a burden for the country.