The linkage between inflation and economic growth : Evidence from India

Abstract

Even though the country’s economic numbers showed improvement, a re-calculation revealed a substantial decrease in growth. As a result, the economy of a country is struggling, which is a grave worry. A drop in revenues, a reduction in economic activity and job losses are all the outcomes of such a decline. In addition to economic development, inflation is a critical component of the economy. Purpose of the Study: While some studies found that economic expansion does not directly affect inflation, foreign investment and other economic issues, further research discovered the opposite. This research explored the effect of inflation on economic growth and determined a positive link between inflation and economic development in India. The study uses quarterly time-series data to analyze the impact of inflation on economic growth from the first quarter of the 2011-2012 financial year to the first two quarters of the 2020-2021 financial year. Methodology: To complete this study, the time-series data was used during the time span 2011-2021. Several econometric methods are employed to research this kind of connection, including the Augmented Dickey-Fuller (ADF) unit root test, ARDL, Johansen co-integration and Granger-causality test. Finding: A positive connection in the context of inflation and economic growth was found in the research. The study indicates a very strong, obvious inverse relationship between the two.