Fiscal stimulus measures implemented in India to address the difficult situations posed by the COVID-19 pandemic have had a limited and transitory effect on inflation in the country, unlike the high inflationary pressures experienced in many evolved economies.
A study published by Reserve Bank of India (RBI) economists Nishant Singh and Binod Bhoi indicates that the greatest effects of inflation in the post-pandemic era were seen in economies with greater fiscal expansion. In the case of India, the study suggests that the post-pandemic fiscal pandemic has not been linked to higher inflation.
The volatility of inflation in terms of popular deviation is less than one in India in the post-pandemic period.
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The study examines the effect of pandemic-induced fiscal expansions on inflation in selected complex economies (EAs) and emerging market economies (EMEs), controlling for supply-side factors.
Empirical research suggests that countries with higher fiscal stimulus experienced higher post-pandemic inflation on average. Countries with moderate fiscal measures have sometimes experienced relatively subdued inflationary performance.
The COVID-19 pandemic has triggered large-scale stimulus policies in complex economies (EAs) and emerging market economies (EMEs). Inflation began to rise in 2021 with the easing of COVID-19 restrictions and reached multi-year highs in 2022 as a result of the Russia-Ukraine conflict.
Despite the not unusual global shocks, surges in inflation vary across economies, either in terms of timeliness or persistence, according to the study.
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The central government and RBI implemented a sensible combination of fiscal and financial policies and announced a special and comprehensive economic program equivalent to 10% of India’s GDP to mitigate the negative effect of the pandemic.
“Fiscal policy measures in India have targeted vulnerable segments, focusing mainly on social coverage and health care in the early stages of the pandemic, helped later by increased public investment and sector-specific relief programs,” he notes.
Along with rising inflation, volatility has also increased in the post-pandemic period, reflecting increased macroeconomic uncertainty. Across economies, the rise in inflation largely began in the second part of 2021 and continued into 2022, leading to synchronized adjustment. of financial policies.
Across economies, the magnitude of direct fiscal stimulus and liquidity varied, with the magnitude of the combined overall stimulus greater in complex economies than in emerging market economies.
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