Year: 2026
Type: article
Abstract: This study examines whether fiscal and monetary policies in India are coordinated or conflicting in maintaining macroeconomic stability. We estimate a Structural Vector Autoregression (SVAR) model using quarterly data from 1997 to 2025. The results show fiscal expansions temporarily increase economic activity but raise public debt. Higher debt triggers monetary tightening and increases debt servicing costs. Monetary policy responds countercyclically and contains inflation. However higher interest rates also increase fiscal pressures through borrowing costs. Exchange rate depreciation produces persistent inflation pass-through, highlighting the external sector’s role in policy transmission. We test robustness using alternative identification schemes, threshold nonlinearity tests, and regime-specific analyses before and after India’s adoption of a flexible inflation-targeting framework. The main results remain robust across specifications and policy regimes. The Reserve Bank of India pursues an active countercyclical monetary policy, while fiscal policy remains expansionary, indicating the need for stronger policy coordination.
Source: Journal of Applied Economics
Authors: Vinay Kumar, Rekha Ravindran
Institution: Indian Institute of Technology Bhilai
Language: English
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $1,533
OpenAlex ID: W7221503856