Impact of Workers’ Remittances on Inflation in India: An ARDL Bounds Testing Approach

This study examines the relationship between workers’ remittances and inflation in India, aiming to understand how remittance inflows impacted inflationary trends during 1991 to 2021. The study also includes control variables, such as the output gap (OG) and call money rate (CMR), to examine their influence on inflation in India. Utilising the autoregressive distributed lag bounds test, the study confirms the existence of long-run relationships among these variables. The findings reveal that a unit increase in workers’ remittances (WR) leads to a 0.23% increase in the WPI, indicating a substantial impact of remittances on inflation. Additionally, the study finds that the CMR and OG also play critical roles in this dynamic, with the CMR being inversely related to inflation, as lower interest rates tend to increase borrowing and spending, thereby raising prices. The OG is also shown to influence inflation, with the results suggesting that economic activity levels affect price stability. The study emphasises the importance of proactive monetary policy adjustments, targeted social programmes and investments in productive sectors to mitigate inflationary pressures. JEL Codes: C01, E31, F24