Anand Shrivastava, Assistant Professor, Azim Premji University
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.
Girish Bahal and Anand Shrivastava, Fiscal Transfers and Inflation: Evidence from India,CSE Working Paper #26,Azim Premji University, December 2019.