Reasons for Inflation in India
Priority will be to balance growth and inflation. The balance may can be different compared to a developed country. RBI to find the right balance of growth and inflation itself based on various factors. India is in growing stage and so we cannot sabotage the growth prospects. At the same time high inflation affects poor people badly and it cannot be ignored.
Inflation is a regressive tax that hurts the poor the most as their earning are not protected against rising prices. Though indian inflation cannot be connot be controlled by RBI alone (Govt is spending money like any thing and increasing fiscal deficit), controlling inflation remains to be one of its objective. Inflation of 9% is not acceptable and RBI has to step in to bring it down or stop from increasing further.
Points for reducing interest rates - Growth is necessary condition for poverty reduction. Growth translates into lower unemployment rate. In place of raising inflation fiscal prudence should be brought into place. Funds should be channelized towards developing infrastructure. There is structural inefficiency in India. There are problems in public distribution system (grains rot in warehouses thus reducing the availability in market). Indian food production is saturating, while the population is increasing. We need investment in developing irrigation facilities, building warehouses, cold storages. Govt and RBI need to think long term instead of short term.
- monetary expansion
- demand side pull
- supply side constraint
Priority will be to balance growth and inflation. The balance may can be different compared to a developed country. RBI to find the right balance of growth and inflation itself based on various factors. India is in growing stage and so we cannot sabotage the growth prospects. At the same time high inflation affects poor people badly and it cannot be ignored.
Inflation is a regressive tax that hurts the poor the most as their earning are not protected against rising prices. Though indian inflation cannot be connot be controlled by RBI alone (Govt is spending money like any thing and increasing fiscal deficit), controlling inflation remains to be one of its objective. Inflation of 9% is not acceptable and RBI has to step in to bring it down or stop from increasing further.
Points for reducing interest rates - Growth is necessary condition for poverty reduction. Growth translates into lower unemployment rate. In place of raising inflation fiscal prudence should be brought into place. Funds should be channelized towards developing infrastructure. There is structural inefficiency in India. There are problems in public distribution system (grains rot in warehouses thus reducing the availability in market). Indian food production is saturating, while the population is increasing. We need investment in developing irrigation facilities, building warehouses, cold storages. Govt and RBI need to think long term instead of short term.
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