Rising Inflation
Rising inflation
Inflation in India – Nature and Magnitude
If it all there is a dream in the minds of India’s policy makers and RBI, it is to conquer the unflinching inflation. Of course in a candid tone we can say that it is a pipe dream at least in the context of current times. Inflation needs no introduction. Inflation occurs due to a steep rise in price levels against the normal purchasing level of consumers. In the recent years, more than any issue Inflation has plagued the Indian economy and undermined its growth prospects. Due to high inflation and deteriorating depreciation of Rupee, India has become a dwindling brick among the BRICS nations and has been downgraded in its credit ratings by S&P, Moody and Fitch.
India’s head line inflation which is based on the Whole sale price index has lowered to 7.25% in June 2012 from 7.55% in May 2012. Though Indian government has registered a success in bringing inflation in non-food items in control, it is still grappling with soaring inflation in food, fuel and power arenas. This article contemplates and comments on the causes of inflation and effects of inflation on financial measures such as balance of payments, depreciation, FDI, FII etc.
How inflation surfaces and why RBI’s measures are backfiring?
Analysis
Inflation generally starts as a demand-pull inflation where a colossal amount of money chases few goods. In order to curb and absorb this colossal money, RBI has been hiking the repo and reverse repo rates. In spite of such a tough stand by RBI, we have not seen a considerable decline in inflation. In fact RBI is held accountable for the dismal growth rate of 6.5% for the year 2011-2012. Most of the corpus money which RBI is targeting at is black money and the black money holders can’t deposit this money in banks (despite attractive interest rates) as they get charged for disproportionate assets case.
This money can neither be invested in the capital markets as Income tax department monitors their
Inflation in India – Nature and Magnitude
If it all there is a dream in the minds of India’s policy makers and RBI, it is to conquer the unflinching inflation. Of course in a candid tone we can say that it is a pipe dream at least in the context of current times. Inflation needs no introduction. Inflation occurs due to a steep rise in price levels against the normal purchasing level of consumers. In the recent years, more than any issue Inflation has plagued the Indian economy and undermined its growth prospects. Due to high inflation and deteriorating depreciation of Rupee, India has become a dwindling brick among the BRICS nations and has been downgraded in its credit ratings by S&P, Moody and Fitch.
India’s head line inflation which is based on the Whole sale price index has lowered to 7.25% in June 2012 from 7.55% in May 2012. Though Indian government has registered a success in bringing inflation in non-food items in control, it is still grappling with soaring inflation in food, fuel and power arenas. This article contemplates and comments on the causes of inflation and effects of inflation on financial measures such as balance of payments, depreciation, FDI, FII etc.
How inflation surfaces and why RBI’s measures are backfiring?
Analysis
Inflation generally starts as a demand-pull inflation where a colossal amount of money chases few goods. In order to curb and absorb this colossal money, RBI has been hiking the repo and reverse repo rates. In spite of such a tough stand by RBI, we have not seen a considerable decline in inflation. In fact RBI is held accountable for the dismal growth rate of 6.5% for the year 2011-2012. Most of the corpus money which RBI is targeting at is black money and the black money holders can’t deposit this money in banks (despite attractive interest rates) as they get charged for disproportionate assets case.
This money can neither be invested in the capital markets as Income tax department monitors their