This article analyses the quantity–price relationship using the GDP and the wholesale price data for India for the period 1983–2023. The relationship is, however, assessed not in isolation rather in the broad context of share market functioning and employment growth. The advantage is that we are able to understand the linkages between economic growth and employment growth, on the one hand, and the real sector and financial sector as well. Findings confirm that employment loss resulting in a deceleration in demand can actually retard economic growth. On the other hand, the role of the share market in raising economic growth is nominal. Price is not seen to influence economic growth significantly, and it is difficult to reduce the price even after augmenting production, once it has already shot up. Hence, the price strategy to provide an incentive to the producers must be played carefully. The measurement of core inflation shows that it comprises a significant component of the total price rise, though the core inflation part has come down significantly over the years, unravelling the efficiency of the government in pursuing price management.

Inflation, growth, employment, share market, demand

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Appendix

VAR Diagnostic Tests

Normality test

 

Residuals serial correlation LM test

 

Heteroskedasticity test (includes cross terms)

 

AR inverse roots

 

Impulse Response Function

Effect of Cholesky one SD. Price Innovation (i.e., response of different variables to price shock)

 

Effect of Cholesky one SD. Sensex Innovation (i.e., response of different variables to share market shock)

 

Effect of Cholesky one SD. Employment Innovation (i.e., response of different variables to employment shock)

 

Effect of Cholesky one SD. Realgva Innovation (i.e., response of different variables to value-added shock)

 

Regression of price growth on its lagged values:

Price = 0.032924 + 0.491404Price (−1) −0.075476Price (−2) (2.87)* (2.79)* (−0.43)

t ratios in parentheses: *Significant at the 5% level. AIC = −4.01