INFLATION:The Ground Reality

[Pritish Singla]

              INFLATION: The Ground Reality

 

In a developing country like India , inflation is always a major issue to discuss upon. High rate of inflation (>8%) usually presents a highly infavourable environment for economic growth. It propels an increase in interest rates, leading to fall in investment, government spending and hence occurs a decrease in the flow of money.

In India , inflation had been a key hurdle for the past few years, with rates skyrocketing to as high as 10.7% (in 2013). This had caused a great unrest in the markets and created a lot of pressure on the Union Government. However, due to various factors inflation has been largely  on downward trend for the last couple of years .WPI Inflation has been in the red for the whole of 2015 ,touching levels of 4% in the negative in July. Even the CPI Inflation has come down to 3.78% in July, a paltry number,  given the standards we had set for ourselves over the years.

The stats surely may seem to project that India has overcome the inflation factor, the ground reality doesn’t seem to resonate with the numbers. Our ‘aam aadmi’ has still not been relieved of the rising prices. Some of the key factors for the same are:-

• ·        Inefficient handling of farm produce: Although India’s farm output has been rising at a healthy rate of 3-odd cents over the past decade, we still face the issue of food shortage, which in turn leads to inflation. A 2013 Parliament estimate shows that between poor farm productivity, bad roads, lack of supply chains and pitiable storage conditions, produce worth Rs 50,000 crore—40 percent of the total—is wasted in the country every year.

• ·        Fuel Prices: The global crude prices have come down to as low as $50/barrel, a decrease of almost 60% over the past year-and-a-half, the domestic fuel prices have not come down proportionately. The government seems more interested in increasing the taxations on the fuels in order to consolidate its revenues.

• ·        Base Effect: It should be duly noted that the months of July and August have experienced relatively high inflation over the last two years (8-9%) .This provides a high base effect for the YoY calculations.

The Government of India needs to step up and further its endaevours in order to create an ecosystem where inflation is always under control and the results reach the lowest level of our economy. Prolonged periods of high inflation hamper the business sentiment, lower the demand which in turn prove a deterrant for the economic progress.The Reserve Bank of India has set a target to limit the CPI inflation rate for the FY15.Hopefully, we ‘ll meet that target and ‘ll continue our journey in negotiating the hurdle of inflation.

 

-Pritish Singla

 

 

 

[Harshvardhan Singh]

Inflation happens both due to supply side and demand side effects. In India's case demand has been controlled to a large extent by the hawkish stance of the RBI. Now onus lies on the government to prop up supply and contribute towards lowering inflation. This needs huge improvement in productivity. Massive investment in infrastructure, skill development, ease of doing business and financial inclusion are some of the areas where govt. must focus.

So with RBI having done its job, now the ball is in the government's court to ensure that the productivity of the Indian economy gets a big boost.

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