Inflation In India And Measures To Control

The rate at which the price of goods and services rises is inflation. Consumer purchasing power is frequently impacted by inflation. The measures taken by RBI to measure inflation and the other central banks aim to keep inflation to keep their economies stable, leading to a steady-state. Inflation has both advantages and downsides. Over time, the average price change in the range of commodities and services is used to calculate inflation. Inflation in India is usually calculated by the Ministry of Statistics and Programme Implementation. The measures taken by RBI to control inflation are traditionally used to maximise the country’s economy.

Inflation is majorly classified under three categories:

1. Demand-Pull: In The demand-pull effect in a developing economy, people will have more money to spend on products and services as wages rise due to the incredible growth in the demand. As demand for goods and services increases, firms will raise prices, which will be passed on to customers to balance supply and demand.
2. Cost-push: In this, it asserts that when the companies producing consumer goods give higher input costs for raw materials and labour, they make sure to maintain their profitability by passing on the higher production costs to the final consumer along the supply chain in the form of higher cost pricing. Here, cost-related factors increase since it is directly proportional to the cost of production.
3. Volatile inflation: It occurs when there is an unstoppable increase in the prices in the economy, which usually occurs during a national threat or wartime. Therefore, measures taken by RBI to control inflation and increase the money supply will not support economic growth, leading to this effect of reduction in the economy.

Causes of inflation:

1.  Demand causes: When the economy’s aggregate demand exceeds the economy’s total supply, this kind of situation occurs. It can also be a situation where there is an excessive amount of money but lesser production of goods.
2. Supply causes: Supply-side inflation significantly contributes to India’s growing inflation. Scarcity is created by agricultural scarcity or transit damage, resulting in significant inflationary pressures. Similarly, higher labour cost raises the cost of production, resulting in higher prices for items. The cost of production assesses the measure of inflation, i.e., often increased by energy concerns, which raises the value of the finished product. Furthermore, global price increases frequently impact inflation on the supply-side of the economy.
3. Domestic causes: India’s financial market is largely underdeveloped, resulting in a poor link between interest rates and total demand. This explains the real money gap, which has been identified as a possible predictor of price rises and inflation in India. In India, there is a disparity in output and real money difference. The money supply expands quickly while the supply of products takes its time, increasing inflation. Similarly, hoarding becomes a serious issue when onion prices skyrocket in India. There are a variety of additional viewpoints on the gold and silver commodities and their price increases.
4. Other causes: The establishment of the exchange rate is a critical component of the inflationary pressures that occur in India. The country’s liberal economic outlook influences India’s domestic markets. As US prices rise, it affects India, where commodities are now imported at greater costs, increasing prices. As a result, the nominal exchange rate and import inflation are indicators of the economy’s competitiveness and problems.

Measures of inflation:

1. Monetary measures: Its primary aim is to reduce the income money. The measures taken by RBI to control inflation is by an approach to managing the money supply and interest rates through the employment of monetary policy instruments under its control is referred to as monetary policy.

Various monetary policy tools include –

1. Statutory Liquidity Ratio (SLR).
2. Cash reserve ratio (CRR).
3. Repo rate.
4. Reverse repo rate.
5. Bank rate.
6. Market Stabilisation Scheme (MSS).
7. Open market operation (OMO).

1. Fiscal measures: Fiscal policy is how a country’s government manages the flow of income tax and public spending to move the economy in the right direction. Fiscal measures broadly fall under taxation and public expenditure. An increase in saving and public debt is considered a subset of this measure of inflation.
2. Administrative measures: Apart from the other mentioned measures, The measures taken by RBI to control inflation can be categorised under administrative actions that the country can take up to control the inflation rate. An increase in production and rationing involving the public in the country falls as one of these measures controls the inflation rate. The goal is to reduce the overall supply by increasing the total demand.

Hence to control inflation, all the measures must be implemented by the government simultaneously. 

Apart from the measures mentioned above, other actions taken by RBI to control inflation are the rise in repo rate, reduction in the amount of credit paid, and use of the sterilisation technique. 

The above elaborated on the causes of inflation and measures to control it.

Conclusion

Inflation in a controlled manner is for the better good of the country’s growth. CPI and WPI usually measure inflation. If inflation is not regulated, it causes volatility in inflation and leads to an imbalance in the country’s economy. There are various causes of inflation in India that can’t be overlooked due to their effect on the Indian economy. During inflation in the country, the intensity of the people’s purchasing reduces to the increased prices of the goods and services. The value of currency units decreases during high inflation rates, and the cost of living also increases, leading to poor economic growth. Hence, measures to control inflation against the rapid increase in its rate must be followed to monetise the country’s economy and people’s welfare.