Shocks and Stability Assessing Economic Resilience Through Capital Expenditure in Indian States

This study builds on the framework of endogenous growth theory, which emphasizes the role of public investment in enhancing long-term productivity. This study investigates the impact of capital expenditure on economic resilience using a Difference-in-Differences (DiD) approach applied to Indian states before and after COVID-19. The findings reveal that states with higher pre-pandemic capital expenditure experienced 2.53 per cent greater per capita GSDP growth post-pandemic, highlighting the role of public investment in economic recovery. Sectoral analysis shows that the service sector contributed the most to resilience, followed by agriculture, manufacturing, and construction. The study also highlights the uneven distribution of economic gains, with income inequality playing a significant role. Robustness checks confirm that the observed effects are not driven by pre-existing trends. The results emphasize the importance of targeted fiscal policies, sectoral diversification, and financial inclusion in strengthening economic resilience. This research provides policy recommendations for infrastructure investment, financial access, and inclusive growth strategies to enhance long-term economic stability. JEL Codes: C19, E69, H12, H72