CAUSES OF INFLATION AND GOVERNMENT MEASURE TO CONTROL THE INFLATION

• TREND IN PRICES AND INFLATION 2
  CAUSES OF INFLATION AND GOVERNMENT MEASURES TO CONTROL INFLATION
  MACRO ECONOMICS

• CAUSES OF INFLATION

1.       INCREASE IN MONEY SUPPLY:-IN INDIA SUPPLY OF MONEY HAS INCREASED MUCH MORE THAN GROSS DOMESTIC PRODUCT.

2.       DEFICIT FINANCING:-DEFICIT FINANCING MEANS PRINTING OF NOTES TO FINANCE DEFICIT ,AS A RESULT SUPPLY OF MONEY INCREASES. IF PRODUCTION DOES NOT RISE SIMULTANEOUSLY,PRICES BEGIN TO RISE

3.       INCREASE IN POPULATION:-INDIAN POPULATION HAS BEEN RISING SINCE 1921.RISE IN PRICES IS VERY MUCH INFLUENCED BY EXCESSIVE PRESSURE OF POPULATION

4.       SETBACK TO PRODUCTION: AS THE AGRICULTURE PRODUCTION IS AFFECTED BY NATURAL LIKE RAIN,DROUGHT AND FLOOD ETC. AGRO INDUSTRY IS DEPENDENT ON AGRICULTURE INPUTS. BUT THERE IS SHORTAGE OF AGRICULTURAL PRODUCTS SO IT WILL LEAD TO RISE IN PRICES

5.       INCREASE IN MINIMUM SUPPORT PRICE OF FOOD GRAINS: GOVERNMENT HAS INCREASED SUPPORT PRICE FOR FOOD GRAINS. SUPPORT PRICE HERE MEANS MINIMUM FOOD GRAINS FIXED BY GOVERNMENT. INCREASE IN MSP LEADS TO INCREASE IN THE PRICE LEVEL.

6.       INCREASE IN WAGES AND SALARY:-IN INDIA EVERY PRICE RISE IS FOLLOWED BY A WAGE INCREASE THE  COMPOUNDING THE PROBLEM OF INFLATION. EVERY WAGE INCREASE RESULT IN COST OF PRODUCTION WHICH IN TURN LEADS TO COST PUSH INFLATION

7.       ADMINISTERED PRICE: REFERS TO PRICE FIXED BY GOVERNMENT FOR ESSENTIAL GOODS. PRICE LEVEL IN THE COUNTRY HAS ALSO INCREASED ON ACCOUNT OF THE FREQUENT HIKE IN THE ADMINISTERED PRICES.

8.       HIKE IN OIL PRICES AND GLOBAL INFLATION HAS ALSO INFLUENCED PRICE RISE IN OUR COUNTRY

9.       DUE TO IMPOSITION OF INDIRECT TAXES HAS ALSO CAUSED RISE IN PRICES

10.   UNFAVORABLE TERMS OF TRADE

11.   REMOVAL OF PRICE AND DISTRIBUTION CONTROL: DUE TO THIS PRICES ARE FIXED BY THE MARKET FORCES.IT ALSO CAUSED RISE IN PRICES

12.   EXPECTATION OF FUTURE RISE IN PRICES

13.   INCREASE IN UNPRODUCTIVE PUBLIC EXPENDITURE

14.   CREDIT EXPANSION

15.   BLACK MONEY

16.   URBANIZATION

• SUGGESTIONS TO CHECK INFLATION

1. CHECK ON SUPPLY OF MONEY
2. LESS DEFICIT FINANCING
3. INCREASE IN AGRICULTURE PRODUCTION
4. INCREASE IN INDUSTRIAL PRODUCTION
5. NATIONAL WAGE POLICY
6. APPROPRIATE FISCAL POLICY
7. APPROPRIATE MONETARY POLICY
8. SUGGESTIONS
9. DISTRIBUTION THROUGH FAIR PRICE SHOPS
10. CHECK BLACK MONEY
11. CONSUMER’S ORGANIZATION
12. CONTROL OVER POPULATION
13. IMPORT OF ESSENTIAL COMMODITIES
14. GROWTH OF POWER AND TRANSPORT
15. CONTROL OVER INCREASE IN ADMINISTERED PRICES

• MEASURES BY THE GOVERNMENT TO CONTROL THE INFLATION

1. MONETARY MEASURES
2. FISCAL MEASURES
3. PRICE CONTROL

• MEASURES

1. MONETARY MEASURES:-IN ORDER TO ACHIEVE THE OBJECTIVES OF PRICE STABILITY RBI OF INDIA REGULATES THE SUPPLY OF MONETARY POLICY.ADOPTED QUANTITATIVE MEASURE :BANK RATE,CASH RESERVE RATIO ETC AND QUALITATIVE MEASURES
2. FISCAL MEASURE:GOVT HAS TAKEN VARIOUS FISCAL MEASURES TO CHECK INFLATION LIKE:-

a)       REDUCTION IN UNNECESSARY EXPENDITURE

b)       ADDITIONAL TAXES

c)        REDUCTION IN THE QUANTUM OF DEFICIT FINANCING

d)       CHECKING OF UNNECESSARY CONSUMPTION

e)       VARIOUS SCHEMES TO PROMOTE SAVING

3. INCREASE IN AGRICULTURE  AND INDUSTRIAL PRODUCTION
4. GOVERNMENT HAS BANNED AND IMPOSED EXPORT DUTIES ON EXPORT OF ESSENTIAL GOODS
5. IMPORT OF ESSENTIAL GOODS
6. DUAL PRICING POLICY
7. PUBLIC DISTRIBUTION SYSTEM
8. CHECK ON HOARDING
9. GOVERNMENT HAS BUILT BUFFER STOCK OF ESSENTIAL GOODS
10. INSTITUTIONAL MEASURES:-MANY INSTITUTIONS LIKE FCI, CCI HAVE TAKEN VARIOUS STEPS TO STABILIZE PRICES OF FOOD GRAINS,COTTON AND JUTE ETC
11. PROMOTING COOPERATIVE STORE:-VARIOUS CONSUMER COOPERATIVE STORES HAVE BEEN SET UP FOR SUPPLYING ESSENTIAL GOODS AT LOW PRICES
12. EVALUATION OF PRICE POLICY

a)       UNCOORDINATED POLICY

b)       FAILURE TO CHECK BLACK MONEY

c)        DEFECTIVE PLANNING

d)       ADMINISTRATIVE DIFFICULTIES