Subsidies and Market Borrowings: Unraveling the Fiscal Dynamics in India's Development Expenditure

Abstract

This research paper examines the effect of government subsidies on market borrowings in India, with a focus on the moderating role of development expenditure. Utilizing quantile panel data method, data derived from 27 states and 3 union territories over the period 2019-2023, the study employs quantile regression to analyze the relationship. Results indicate that subsidies significantly influence market borrowing only at higher quantiles, suggesting that excessive subsidies can lead to increased borrowing needs. Development expenditure, however, does not significantly moderate this relationship. The study concludes that while subsidies can stimulate economic activity, their design and implementation must be carefully managed to avoid fiscal imbalances. Policy recommendations advocate for targeted subsidies that enhance productivity and future revenue, reducing the reliance on market borrowings