Revisiting India’s Growth Experience

[This paper reexamines the question of the India's growth takeoff using newer data and time series analysis. By carefully accounting for structural breaks and stationarity issues and using a longer times series, we address the lacuna in previous econometric investigations into the Indian economy. We first show that, based on 2004-05 series of GDP data, econometric tests are more ambiguous about the breakpoint in India's economic growth; accounting for droughts however restores the 1980 breakpoint. Second, using national account data to construct a long time series on India's government deficits and accounting for structural breaks, we find a positive long-run cointegrating relationship between deficits and growth and no short-term causal effect from deficits to GDP. The large expansion of fiscal deficits can account for a significant proportion of the increase in GDP growth in the 1980s. Third, we find no causal link between the fiscal deficits and current account deficits or the BOP crisis of 1991