Cash transfer per se may not impact on inflation

T.C.A. Anant welcomed the flagship scheme as a right move towards cutting leakages in the subsidy system.

Its ability to contribute to inflation will depend on the government's overall "budgetary position" and how the scheme is financed, he said.

"Indirect transfers are more prone to leakages than direct cash transfers," Anant told the media on the sidelines of an event organised by the Indian Statistical Institute (ISI) here.

"So that is why the government is saying that they are planning to put in place a mechanism of direct cash transfer.

"So, from an economic perspective, it (DCT) is a step in the right direction. How well it will work will have to be seen," he said.

"By itself transfers are not inflationary. It is the overall government budgetary position which determines whether the thing is inflationary or not...

"In fact, in a good tax system you will have direct transfer and taxes," he added.

If the subsidy burden due to DCT is financed by additional market borrowing by the government, then it will have some inflationary pressure on the economic system.

Anant was hopeful that the current capital inflow into the country would remain stable as the overall economy was expected to remain robust.

"Capital flows are influenced by a lot of factors. Overall expectations of the Indian economy still are robust. I would expect capital flow to stay okay," he said.