INFLATION IN INDIA: THE PRESENT SCENARIO

Inflation means a rise in prices of goods and services in an economy over a period of time. Inflation is caused by some demand-side  factors (Increase in the money supply, Increase in income, Black money spending, Expansion of the Private Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of production, Industrial Disputes, Increase in exports (excess exports), Global factors, Neglecting the production of consumer goods).

                        

The Nobel laureate’s analogy may be apt to India. After 12 rate hikes since March 2010, many are calling for the pause. However, with inflation at more than 8% for over 18 months, the longest since reforms began two decades ago. It may be time to worry about hangover. Those call for a pause in the rate hike are from the ones who benefit from inflation, conveniently for getting that if inflation persists any longer, the very growth that they are enjoying will vanish.

Causes of Inflation:

When the price pressures began to build, it was blamed on poor monsoon rains that led to lower output. Inflation due to rising crude oil prices was also one of the causes. After many months of denial, it is accepted that the pressures are now broad based, which left without tough measures could run out of control.

The inflationary spiral had begun, and the potential disturbance to economic climate is visible with rising labour strife, demand for higher salary. Most importantly, the pace of an increase in wages in rural and urban areas has also been much more than the inflationary expectation in the recent year. Monetary actions are beginning to have an impact. However, for it to have the desired effect, the fiscal side needs to a co-ordinate, which seems to be absent. The government requires conducting its finances prudently helping the monetary authorities. The synchronization between fiscal policy and monetary policy is not up to the required level. Government continues with its fiscal expansionary policy, such as subsidies on petroleum products, fertilizers and doling out funds by the name of the employment schemes. It has already said it would borrow Rs. 53,000 crore more than it had budgeted in February. Due to excess of expenditure in fiscal policy, the impact of monetary policy suffered. Another reason is inflation can happen when governments print an excess of money to deal with a crisis. When any extra money is created, it will increase some societal group’s buying power. All sectors in the economy try to buy more than the economy can produce. Shortages are then created, and merchants lose business. In the end, the price-level  rises.

Impact on the economy::

Inflation affects the different sectors of the economy (Effects on the distribution of income and wealth, Effects on production, Effects on the Government, Effects on the Balance of Payment, Effects on Monetary Policy, Effects on Social Sector, Effects on Political environment) and different classes of the people (Debtors & Creditors, Salaried Class, Wages earners, Fixed income group, Investors and shareholders, Businessmen, Agriculturists).

The common reason of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, this in turn leads to the company increasing prices to maintain their profits. Due to higher-cost  consumer, purchasing power gets decline, which cost fluctuation in demand and supply part.

Consequences

Inflation always hurts ones' standard of living. Rising prices mean people have to pay more for the same goods and services. Provided that income increases at a slower rate as inflation, the standard of living declines even if one makes more. So it is the root cause in making and affecting economy and people of the country poor.

Recently, On October 26, 2011 RBI hiked rates again to control the inflation. RBI has increased the repo and reverse repo rate by 25 basis point (. 25%%) to control the inflation. Simultaneously, to encourage the saving of the common man RBI has deregulated the saving bank deposit rates.  

Conclusion:  

The government is taking many measure to lower down the rate of inflation i.e. rising of the repo and reverse repo rate,  enhancing the role of monetary policy but for it is said that for the growth of the country inflation is necessary but excess of inflation can cause crises.

                                                             Written by : Rohit Dheer
                                                                                  ( BIMTECH)  

INCLUSIVE GROWTH: A CHALLENGING OPPORTUNITY ( INDIA)

Developing India’s outstanding gross domestic product (GDP) growth rates have disguised rapidly rising relative and absolute inequalities. The importance of inclusive growth in a developing country like INDIA is to share the benefits of growing economy equally among all parts of society. There are leading two faces of INDIA. One is “Rural India” and another is “Urban India”. Rural India, i.e. Villages comprising of 70% of the population, lives in backward part of the country where education, health, clean drinking water, sanitation etc. is not proper. This has excluded many poor and dispossessed them from the main stream of growth. In contrast, Urban India, comprising of 30% of population, lives in citified area, i.e. towns and is competing internationally and benefiting from the forces of globalization and technological change. According to Asian Development Bank, a growth is inclusive when it allows all the member of a society to participate in and contribute to the growth process on an equal basis regardless of their individual circumstances. India's Gross Domestic Product (GDP) growth rate is rapidly rising as economy consists of traditional village farming, modern agriculture, handicrafts, a wide-range MSME (micro small and medium enterprises), and service sector industry, which is the major source of economic growth. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. However, still, despite of fast economic growth, India faces massive income inequalities, high unemployment and widespread malnourished children especially in rural part of the country where there is an absence of health facilities. Seeing to the problem a concept of Inclusive growth comes into the being which would focus on creating economic opportunities and ensuring equal access to them. This will play an important role in the development of the country.

In addressing these challenges, India is adopting this concept of inclusive growth as the goal of development policy in 12th five year plan. This plan will encourage the development of India’s agriculture, education, health and social welfare through government spending .Since last 50 years after the independence the policies of India had a central focus on the poverty alleviation but now the vision has been recently switched to a new strategy focusing on two objectives: raising economic growth and making growth more inclusive (Planning commission of India 2006).

ISSUES FOR INCLUSIVE GROWTH

Inclusive growth means growth with equal opportunities. Therefore, this focuses on both creating opportunities and making opportunity accessible to all. The Importance of opportunity to all lies into fundamental values which is based on the belief that equal opportunity is a basic right of a human being, and it is not fair to treat individuals differently in accessing the opportunities. Opportunities should not be biased assuming religious background, parental education, geographic location and caste. Inclusive growth not only means inequality issues, but also enhances the poverty reduction. The impact of inclusive growth will be higher on poverty reduction when the initial level of inequality is lower and by creating the productive employment opportunities and making them equally accessible for all.

As Agriculture is the predominant occupation in India, accounting for about 52% of employment and contributes meagerly about 14.6% to the country GDP. In that case special policies should be made to strengthen the agriculture sector to increase the per capita of the agrarian.

CHALLENGING OPPORTUNITY

Development strategy with inclusive growth as the overall goal should have two supports. Firstly, high and sustainable growth to create productive and decent employment opportunities and secondly, social inclusion to ensure access to opportunities. Challenges lies at the time of implementation when the high and sustainable growth needs be driven from both private sector as well as from the public sector (Government Programs) by bringing both sector on the same path. Likewise there is one of the schemes of Ministry of Rural development i.e.Swarnjayanti gram Swarozgar Yojana in which the youths belonging to rural area and to BPL (below poverty line) families, are given skills on different trades and during the training the placement is tied up with the different companies as per the requirement. As soon as the training finishes these candidates are placed in the company with decent amount of wages. Both Industry and people get benefited as Industry gets a skilled labour to work and people get a skill as well as an employment to start their livelihood. The central role of the government should be to develop and maintain an enabling environment for business investment and private entrepreneurship by addressing market failures, institutional weakness, and policy short coming, maintaining macroeconomic stability, adopting market friendly policies and maintaining rules of law. Promoting social inclusion requires public intervention into three areas: -

(i) Investing in education, health and other social services to provide people with basic needs and to enhance human capacities,

(ii) Promoting good policies and sound institution to advance economic and social justice,

(iii) Providing social safety nets to prevent extreme deprivation.

CONCLUSION

Inclusive growth is the challenging opportunity for India as we know what needs to done so that every person contributes towards the GDP of country i.e. India. But the implementation of the plan will be a challenge as it promises a lot for rural development and growth by increasing urbanization and industrial efforts. Financial inclusion in rural areas can play a major role in strengthening the economic condition of the people who lives in the rural areas. The services can be facilitated by the Non-government organization by making awareness. However until Non –government organization, MFIs (Micro finance Institution) do not work simultaneously the inclusive growth concept cannot be implemented in effective way.

                                                         

                                                             Mr. Rohit Dheer
                                                  Birla Institute of Management Technology

Second Inning a risk or opportunity

Today, on 31st may 2011 an inning come to end!! My tenure of 1.5 year in IL&FS clusters development Initiative come to the end.
During this period, I was indulged in different projects like BDS, Skill development, Cluster development and some part of PPP (Public private partnership) model projects. When I started my career as I was the engineering graduate and entered a field which is totally new to me but there is always a word of motivation from my Top management, which has always helped me to enhance my skill in no of ways and some what I made it .I still remember as I was just a 5 pointer in my college days so could not able to start my career in better way as my college mate did. Joined a software company in lucknow with very low salary than worked in UPICO for approx one year and then God / luck and my destiny favoured me with the blessing of my dad, I came across Kunal sir who referred me into the company and I was “In” which made me to get breakthrough in IL&FS which I was looking for thank you so much sir what I am today is just because of you. Slowly under diligent supervision of Jayant sir. I start establishing myself and start learning during this period Jayant sir never scolded me never said u can’t do it or never overburdened me always given me opportunity to prove my adequate skill in no of ways I was like a younger bro for Jayant sir. I am free to do work in my style resources are handed over to me and I am set on fire. Imran sir teaching was like power booster in regular intervals thank you so many sirs for all your help and support.
However, now to upgrade my skill in the field on management, I took an admission to pursue two years regular MBA in the field of Sustainable development practices from BIMTECH, Greater Noida. A place which close to my heart as in year 2007 I had spent about two months with my love over there to pursue summer internship in B. Tech days. I will definitely “MISS” Leena and shazia my best friends who helped me a lot to become an engineer. But this time I am all alone to fight and clear the exams. There will be no one who will take my books to home and mark important paragraph for me, I have to complete my assignment my notes by own. But I know when both of you came to know that I am going for a MBA this year than u both will be happy and give me best wishes . No need of call your prayer always work for me. I know!!! . Mistakes made in college days will not be repeated again it’s a new beginning and wana to come out with flying colours. We planned to make a LR Industry and this dream will come in true. You just pray as it always works for me!!!
Special thanks to visitors especially a visitor from “FORD COMPANY “who regularly use to visit my blog and motivate to write some thing. I know u r still in pain man. Your each and every visit on my blog makes me smile and make me remember that I am still there and how much u compromise my presence will be countable every time. Can only say “Get well soon mamu”.
Let’s hope everything goes fine and will back to work with more skills, knowledge and enthusiasm. Tomorrow there will be no office no work to do, I am not answerable to anyone now.