Sadananda Prusty

Fiscal Policy and Inflation in India: an Empirical Analysis Sadananda Prusty

The main objective of this book is to present a comprehensive, up-to-date, and clear exposition of the theory and principles of inflation that are essential for understanding, evaluating, and suggesting to control inflation and enhance growth in India. More specifically, this study tries to explore the impact of fiscal policies (Central Government as well as State Governments) on inflation in India since the Third Five Year Plan and suggesting policy prescriptions to tackle it. Inflation in India is difficult to achieve in the long-run because of the rapid increase in governments non-plan expenditure on Revenue Account since 1980s. The increase in revenue expenditure is tolerable, if the revenue receipts are adequate. However, this is not the case and leads to an increase in revenue deficit. The allocation of more resources to the Revenue Account results in less allocation of resources to the Capital Account and hence, decline in the creation of productive capacity in the economy. Thus, the fast increase in revenue deficit results in a high fiscal deficit without creating assets in the economy and inflation in India.