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INFLATION
Inflation is no stranger to the Indian economy. In fact,
till the early nineties Indians were used to double-
digit inflation and its attendant consequences. But,
since the mid-nineties controlling inflation has
become a priority for policy framers.
WPI was first published in 1902, and was one of the more
economic indicators available to policy makers until it was
replaced by most developed countries by the Consumer Price
Index in the 1970s.
14
12.63
12
10.65
10 10.25
9.15
Percentage
8 8.09 200607
6.61 200708
6.26 6.37 6.36
6 5.68 200809
5.46 5.38 5.51 5.50
5.12 4.83 5.12
4.73 4.53 4.71
4 3.86 4.14
3.51 3.25 3.60
3.11
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Months
CAUSES FOR INFLATION IN
INDIA
The government of India has always been under the
impression that:
(b) Some inflationary rise in prices is inherent in rapid
economic development- and GDP growth has been
around 7-8 per cent.
1950-51 740
1980-81 37,000
2004-05 9,02,300
Year Production
1964-65 89 million
1965-66 72 million (fall 17 million)
It is true that small businesses and the common man have only limited access to
credit. This is a serious problem, but not one that can be solved through easy
monetary policy.
The poor, meanwhile, not only have limited access to credit, but live on fixed
incomes and have few or no assets to hedge against inflation - so that high
inflation hurts them more than higher interest rates. Consistent with this idea,
research by William Easterly and Stanley Fischer has shown that in a range of
countries, higher inflation is associated with a lower share of national income
accruing to the poor, a higher poverty rate, and a lower inflation-adjusted
minimum wage.
In light of these realities, the RBI is right to have taken steps to rein in inflation.
Compared with many other emerging countries, India has an admirable record of
price stability. Maintaining this track record will pay benefits in terms of
sustained growth with macroeconomic stability, and it will protect the most
vulnerable Indians from the ravages of inflation.
Thank You