Financial Condition of Indian Economy A Review

Abstract

The aim of this article is to explore relative impact of two financial instruments, Broad Money Supply and Share of Stock, on the inflationary pressure in Indian economy. To do so, two separate Financial Condition Index (FCI) are constructed by incorporating these financial instrument variables along with two other monetary variables, namely short term interest rate and foreign exchange rate. The FCIs are then co- related with inflation rate to identify incorporation of which of these two financial variables in FCIyield a better result. It is found out that broad money supply creates greater impact on the financial condition and thereby inflation rate in the context of Indian economy.