FISCAL POLICY AND FINANCIAL BEHAVIOUR IN INDIA: THE ROLE OF INSTITUTIONAL CONTEXT

This study examines how Indias 2019 expansionary fiscal policy influenced saving and borrowing behaviour across states with differing institutional environments. Using state-level data on Scheduled Commercial Bank (SCB) deposits and credit from 2018-19 to 2021-22, the analysis adopts a comparative pre-post approach to evaluate changes in financial behaviour. Institutional density-measured by recognised higher-education institutions per 1,000 square kilometres-is used as a proxy for institutional capacity, including financial awareness and access to formal systems.The findings indicate that the effects of fiscal expansion were not uniform across states. Medium institutional density states exhibited the most significant behavioural adjustment, with strong growth in deposits accompanied by a decline in borrowing intensity. High institutional density states maintained consistently conservative borrowing patterns, while low institutional density states showed limited change, reflecting structural constraints in financial access and institutional capacity.Overall, the results suggest that fiscal expansion reinforced existing financial behaviour rather than transforming it. The study highlights the importance of institutional context in shaping the transmission of fiscal policy and suggests that targeted institutional improvements-particularly in banking access, financial literacy, and administrative capacity-are necessary to enhance policy effectiveness.