Fiscal Transfers and Inflation: Evidence from India

Girish Bahal

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.

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Suggested Citation:

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