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On the Inflationary Impact of Budget Deficit

Mihir Rakshit
Economic and Political Weekly
Vol. 22, No. 19/21, Annual Number (May, 1987), pp. AN35-AN37+AN39-AN42
Stable URL: http://www.jstor.org/stable/4377005
Page Count: 7
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On the Inflationary Impact of Budget Deficit
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Abstract

There is no simple rule to assess the impact of deficit financing. A good deal regarding the scale and composition of the Budget must be known before its inflationary potential can be analysed. The paper examines the complexities of assessing the impact of deficit financing in the Indian context, and is intended to serve as a guide for such exercise. In the latter part of the paper the author illustrates the principal conclusions of the foregoing discussion by examining the inflationary potential of the current 1987-88 central budget, keeping in mind the fact that the exercise would of necessity be incomplete in the absence of detailed data and of reliable estimates of coefficients entering into sectoral demand and supply relations. He finds that from an aggregative analysis along neo-Keynesian lines the current budget cannot be said to have much of an inflationary potential. However at the disaggregative level, a number of factors which are likely to raise prices in the short run and make the economy inflation-prone in the long run can be identified.

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