Government Deficit and Inflation in India

A Prasad and Jeevan Khundrakpam

MPRA Paper from University Library of Munich, Germany

Abstract: This study covering the period 1951-52 to 1999-2000 finds that government deficit has been an important cause for long-run inflationary trend in India. The estimates in the study, however, suggest that there is an optimal level of monetisation for a given level of government deficit and refutes the concern that monetisation of deficit is always inflationary. This is not to suggest in any way that there is more scope to finance government deficit through monetisation. With the increase in capital inflows on which there is a certain degree of lack of control and the consequent predominance of net foreign exchange assets in reserve money, there is a need for greater fiscal restraint as well as monetary-fiscal coordination.

Keywords: Fiscal Deficit; Inflation; ARDL (search for similar items in EconPapers)
JEL-codes: C13 E31 H62 (search for similar items in EconPapers)
Date: 2003, Revised 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in RBI Occasional Papers No.2 & 3.21(2003): pp. 1-14

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