SelfInflation and population growth are two issues that are constantly bothering Tantra Bharat. The truth is that successive governments are finding it very difficult to find a permanent solution to this population growth and rising prices, despite many five-year plans. It is widely believed that Prime Minister Narendra Modi’s bold demonetization of high-value notes to curb the growing influence of black money and the parallel economy in the country was to some extent a policy measure aimed at curbing black money and inflation.
In economic terms, technically speaking, inflation refers to the general price level of essential goods and services that remains stable in our economy over a long period of time. This causes the value of money to decrease. In this situation, if we pay a lot of money, we can get some goods from the market. It reduces the purchasing power of consumers and causes inflation.
Inflation and price rise
Inflation and inflation are two economic phenomena that go hand in hand. An increase in the wholesale price index and an increase in the consumer price index both lead to inflation and price increases. Fluctuations in international fuel prices mainly affect the wholesale price index. An increase in the price of essential commodities influences the Consumer Price Index. Rising prices of essential commodities increase the cost of living for common people. High inflation and inflation were a big problem for India along with many other countries. Delays in recovery from economic problems brought on by the pandemic, economic strains created by the year-long Russia-Ukraine war, and unrest in border regions have compounded the problems.
But the new figures of the Ministry of Finance regarding price increase and inflation have come out as a cause for relief. It is very comforting that the headline inflation has come down to 3.85 per cent from 13.43 per cent recorded in February last year. This is the lowest rate in the last twenty-five months. This decrease, the first recorded since 2021, has continued for the past nine months. Notably, the Consumer Price Index hit a two-year low this month.
Economists were of the opinion that Prime Minister Narendra Modi’s measures since demonetisation will help control inflation. A reduction in inflation, interest rates and land prices can lead to an industrial boom. The extra money in the bank can be used for social security schemes. Many people believed that it would be a relief for the government, which was reeling under inflation and the monetization of the parallel economy.
The government has tried to change the market impact following demonetisation in favor of common people. The government and economists have taken care to ensure that the prices of daily staples, including vegetables, come down across the country. It was the central government’s firm belief that the lack of abundance of currency in the market would at least temporarily curb inflation. The belief was that if this situation continued, the inflation rate and consumer price index would surely fall. The central government also tried to get the benefit of this for the majority of the common people of the country and millions of workers employed in the industrial and service sector. Because the government was aware that the rise in prices of food and other essentials would make life difficult for the common man.
Policies and procedures
Inflation, rising prices, and rising interest rates are economic phenomena that move more or less in the same direction. The Reserve Bank’s monetary policy is aimed at controlling inflation and increasing the rate of growth. The monetary policy of the Reserve Bank has a big impact on the economy. By controlling market rates, the RBI can control everything from consumer prices to export and import. The Reserve Bank’s objective is to control inflation by improving fundamental economic conditions. RBI’s program is to control inflation by taking into account wholesale price index and retail price index. This is followed by Reserve Bank from time to time.
Stability of oil prices in the international market has helped to reduce the inflation rate. Even during the conflict, India took steps to import fuel from Russia at low rates. An increase in the price of food items leads to an increase in the inflation rate. The government has paid much attention to this matter. The central proposal to bring in foreign investment in the retail sector in order to contain the rate of inflation faced by the country was a move that was generally welcomed by economists.
The success secret of the Modi government is that the government and the financial institutions of the country have created conditions to work together to stop the soaring inflation and increase the value of the country’s currency, increase productivity, keep down the prices of essential commodities and improve the standard of living of the common people. The government’s aim was to keep inflation in the low single digits. The central government aims at economic empowerment in such a way that the inflation rate is kept at a constant low level. This is beginning to bear fruit, as indicated by the gross price index inflation rate for February 2023.
The Reserve Bank’s recent review indicated that headline inflation eased to 3.85 per cent in February from 4.73 per cent at the start of the year. Experts believe that the fall in the prices of many essential commodities, including food products, has led to a decline in inflation based on the wholesale price index. Significantly, this is the first time in the last twenty-five months that headline inflation has recorded such a low rate. It is also significant that wholesale prices have been falling continuously for the last nine months due to continuous interventions by the central government and the Reserve Bank. The figures indicate that inflation based on the consumer index is also coming down. In the first days of the new year, inflation in rural areas declined to 6.72 per cent in February from 6.85 per cent. Among the essential commodities, the reduction in onion prices by about 40 percent has brought some relief to overall inflation. Even as the wholesale price index continues to fluctuate, experts expect inflation to be less than two percent in March.
Although outside the RBI’s reserve limit of 6 per cent, the overall price index of 6.73 per cent in February is comforting. It is expected that this may lead to a 25 bps hike in interest rates in the April economic review. The Reserve Bank has hiked short-term lending by 225 bps since May last year. This measure was meant to control inflation. The RBI expects retail inflation to be 6.5 per cent at the start of FY2023 and 5.7 per cent at the end of the year. This inflationary control is part of the economic measures that the central government intends to provide to the common man during Amrut.