Fusion frames and block sparse recovery are of interest in signal processing and communication applications. In these applications it is required that the fusion frame have some desirable properties. One such requirement is that the fusion frame be tight and its subspaces form an optimal packing in a Grassmannian manifold. Such fusion frames are called Grassmannian fusion frames. Grassmannian frames are known to be optimal dictionaries for sparse recovery as they have minimum coherence. By analogy Grassmannian fusion frames are potential candidates as optimal dictionaries in block sparse processing. The present work intends to study fusion frames in finite dimensional vector spaces assuming a specific structure useful in block sparse signal processing. The main focus of our work is the design of Grassmannian fusion frames and their implication in block sparse recovery. We will consider burst error correction as an application of block sparsity and fusion frame concepts. We propose two new algebraic methods for designing Grassmannian fusion frames. The first method involves use of Fourier matrix and difference sets to obtain a partial Fourier matrix which forms a Grassmannian fusion frame. This fusion frame has a specific structure and the parameters of the fusion frame are determined by the type of difference set used. The second method involves constructing Grassmannian fusion frames from Grassmannian frames which meet the Welch bound. This method uses existing constructions of optimal Grassmannian frames. The method, while fairly general, requires that the dimension of the vector space be divisible by the dimension of the subspaces. A lower bound which is an analog of the Welch bound is derived for the block coherence of dictionaries along with conditions to be satisfied to meet the bound. From these results we conclude that the matrices constructed by us are optimal for block sparse recovery from block coherence viewpoint. There is a strong relation between sparse signal processing and error control coding. It is known that burst errors are block sparse in nature. So, here we attempt to solve the burst error correction problem using block sparse signal recovery methods. The use of Grassmannian fusion frames which we constructed as optimal dictionary allows correction of maximum possible number of errors, when used in conjunction with reconstruction algorithms which exploit block sparsity. We also suggest a modification to improve the applicability of the technique and point out relationship with a method which appeared previously in literature. As an application example, we consider the use of the burst error correction technique for impulse noise cancelation in OFDM system. Impulse noise is bursty in nature and severely degrades OFDM performance. The Grassmannian fusion frames constructed with Fourier matrix and difference sets is ideal for use in this application as it can be easily incorporated into the OFDM system.