Fiscal Transfers and Inflation: Evidence from India

Girish Bahal, Assistant Professor, University of Western Australia

Anand Shrivastava, Assistant Professor, Azim Premji University

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Abstract

Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demand constrained. Using a panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending that is based on the introduction of new welfare programs. We then look at a specific program, NREGA, which has been shown to increase rural wages, and show that its implementation did not increase inflation.

Suggested Citation:

Bahal, Girish and Anand Shrivastava.2019. “Fiscal Transfers and Inflation: Evidence from India.” Centre for Sustainable Employment Working Paper #26,Azim Premji University, Bangalore.

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