Does onslaught of globalisation induce pro-efficient government expenditures in a large transitioning economy? Empirical evidence from India

The study attempts to investigate the effects of globalisation on components of general government expenditures and domestic private investment in India during 1980–1981 to 2019–2020, by controlling their other crucial determinants. We observe a positive impact of FDI, per capita income and population growth on both government current and capital expenditures, while FRBM dummy has a strong favourable impact only on capital expenditure. This indicates significant influence of demand side factors on both components of government expenditure along with a favourable effect of fiscal discipline measures on capital expenditure. On exploring the effects of government capital spending and FDI on domestic private investment, we observe government capital spending has a negative effect, while FDI, revenue spending and fiscal discipline measures have positive effects. Thus, we conclude that in response to globalisation while general government in India is augmenting with both pro-efficient and welfare spending measures, its overall fiscal policy does not provide a strong stimulus to domestic private investment.