Budget model: An analysis of impact of budget on growth and inflation in India during 1980-81 to 1991-92

Abstract

An attempt has been made in this paper to develop a budget model by appropriately linking the various macro-economic and budgetary variables to offer a frame work for analysingthe impact of budgeting on growth and inflation. The author first discusses the current trends in budgeting, growth and inflation in India, and then discusses methodology used in developing the model.The model is developed using a simultaneous-equation regression method.An empirical analysis of the model is carried out using time-series data for the eight-year period, 1980-81 to 1987-88, validated the model with the actual data of 1988-89, and worked out projections for 1989-90, 1990-91 and 1991-92. These projections provided useful insights into the likely impact of budget on the real growth of the economy, and for assessing the potential for fiscal inflation. Finally, the conclusions and limitations of the study are discussed.