Relationship between Inflation and Economic Growth

Abstract

This paper examines the relationship between Wholesale Price Index Inflation (WPI) and GDP growth in India for the period 1990-91 to 2018-19 using Multiple Regression Analysis. Policy makers and academicians would prefer WPI Inflation than Consumer price Index-Industrial workers (CPI-IW) and GDP Deflator because of its wide coverage and data availability. The study indicates a negative effect of inflation on GDP growth; while both Broad Money (M3) and Gross Domestic Capital formation has a positive effect on GDP growth. The results of the study also indicates a negative effect of GDP on inflation where as Broad Money has a positive effect on Inflation. The authors opine that policy makers should focus on raising output and infrastructure development to achieve a better macroeconomic environment in which growth and social justice can be ensured. The authors stressed the need for attracting private investments in order to enhance the investment level in the economy as it directly contributes for higher economic growth.