Template-Type: ReDIF-Article 1.0

Author-Name: C. M. Denny
Author-Workplace-Name: St Mary's College
Author-Email: dennyscholar@stmaryscollege.info
Author-Person:

Title: Fiscal Dominance, Structural Rigidities and the Political Economy of Inflation in India: From Nehruvian Planning to the Monetary Policy Framework

Abstract: India's persistent inflation reflects fiscal dominance, structurally distorted
agricultural markets and the primacy of distributional politics over price stability.
Using ARDL bounds testing, Toda-Yamamoto Granger precedence, Bai-Perron
structural break analysis (unconditional and conditional) and GARCH(1,1) with
break dummies on both the conditional mean and variance, applied to quarterly
data spanning 1955 Q1-2024 Q4, the paper identifies three structural determinants
of inflation persistence: fiscal deficits operating through channels distinct from
monetisation; minimum support price policies transmitting cost-push shocks via
the high food share in the CPI; and inertial expectations. The 2014 Q3 transition
coinciding with inflation-targeting adoption constitutes a statistically identifiable
regime shift in both the level and conditional volatility of inflation. Framework
durability depends on continued fiscal consolidation and agricultural reform.

Classification-JEL: E31, E52, E62, O11, Q18
Keywords: inflation targeting, fiscal dominance, minimum support price, ARDL, GARCH, structural breaks, India, food inflation, Phillips curve, Central and Eastern Europe
Pages: 23-48
Volume: 25
Issue: 3
Year: 2026
File-URL: https://hitelintezetiszemle.mnb.hu/sw/static/file/fer-25-3-st2-denny.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:25:y:2026:i:3:p:23-48