Inflation CaseIn India food inflation is in double digits, and overall WPI (which, rather oddly, is that the live policymakers within the country follow) is within the high single-digits. Octobers annual WPI rate of inflation was 7%, up from 6.46% in September. In countries like Japan, deflation remains the larger worry, however Indias inflation is additionally well on top of in alternative rising economies.
Indian agricultural output is extremely volatile, partially attributable to poor infrastructure, poor supply chains, bad storage facilities etc. This implies that changes in climatic conditions can result in very massive fluctuations
India encompasses a poor record on inflation. Between independence in 1947 and 2000, costs rose in double digits, mainly during the oil shocks of the 1970s. Accepted knowledge is that inflation hurts the poor most and, since the majority is poor, will quickly result in a backlash.
Indias industrialists and a few politicians are screaming for lower interest rates. Growth has fallen below 5% and investment has dried up. Having built a slump to satisfy its rigid obsession with low inflation, they argue, the RBI will finally cut rates to kick-start growth.
Will the RBI oblige? Its still troubled regarding inflation. Food costs could rise attributable to a poor monsoon. Alternative natural event shocks square measure possible. Oil costs square measure crawling up. The figures dont nonetheless mirror widespread will increase in electricity tariffs. Suppressed inflation, due to state subsidies of fuel, is running at 2 or 3 percentage points. If the govt. is to repair its dodgy finances this year itll have to cut those subsidies, pushing costs up. Lastly, the run doubts that interest rates, that in real terms dont seem to be that prime, justify the slump in investment. Dangerous governance and an absence of reforms do. Lower rates would possibly resurrect inflation, but not growth.
The Economist, 8 November 2014, by Pramasanth A.
In the short-term, this report points to an increasingly likely scenario for fiscal discipline, although the outlook for the growth outlook will still be negative, with inflation projected to fall far below 1%. This is even though the economy is looking more and more negative in 2015-16.
The Financial Times, 11 January 2014, by Sivana Kumara, Senior Economist, Rajan Institute of Management & Economics, Rajya Sabha; www.rhd.govt.in.
How has inflation reacted to the rise in interest rates? The following question has already been answered: • What does the new policy mean. • Inflation is indeed on the rise.
The Economist, 25 November 2014, by R.W. Bhattacharjee , Senior Economist, Institute of M&A & Development, Rajya Sabha; www.rhd.govt.in.
Do I need to go to a special session of Parliament to discuss this issue? The following question has already been answered: • Do I need the Centre to do any more. • This will probably affect the growth in the next few quarters if there is much activity in many other sectors, including agriculture, tourism. In that case, I am inclined to begrudgingly support the government not to pursue an additional policy to fix it. However: • I am sceptical about the long-term prospects of the government policy statement. • In the long-term, a shift to a fiscal policy like an inflation-reserve policy has more than outweighed the gains made by the government. To me the most likely scenario was that the price of oil would fall sharply in the coming months. If the price of oil fell too much this could become very challenging for the government, especially if there is no inflationary increase.
Financial Times, 7 November 2014, by M. Venkatesh Kheraiah, Senior Economist, Rajya Sabha; www.rhd.govt.in.
Where Do I begin? The following questions have already been answered: • Why do the government not pursue a policy to maintain current surpluses? • The problem with the interest rate hike is that if the rate rises too much a surcharge rises. It does not seem that the government should raise the rate to cover the surcharge needed to pay the current surcharge by the end of this year.
I believe it will be a temporary policy. There is still a lot more to be done. However, given the level of policy instability I think that it will be advisable to consider it again.
Financial Times, 28 July 2014, by M. Venkatesh Kheraiah, Senior Economist, Rajya Sabha; www.rhd.govt.in.