Q5)Comment on the causes and consequences of Indias high inflation rate over the years.

Comments on its solution Reason 1)increase in money in public Incomes rising: The per capita incomes have risen in the 2000s decade tracking rise in GDP and lower population growth , whereas we see decline in food production in the same period. The strong growth is likely to continue and would continue to contribute to higher incomes and demand. 2)Employment Due to increase in employment demand has been increased and this has reflected in increase in inflation 3)Bank Policies Easy policies of banks on loans has increased money in public and this has caused raise inflation

4)Population increase Due to high growth of population , supply is not been able to fulfill the demand in due to this inflation has increased 5)Hoarding

consequences 1. People start consuming or buying less of these goods and services as their income is limited. This leads to slowdown not only in consumption but also production. This is because manufactures will produce fewer goods due to high costs and anticipated lower demand. 2. Banks will increase interest rates as inflation increases otherwise real interest rate will be negative. (Real interest ~ Nominal interest rate inflation). This makes borrowing costly for both consumers and corporate. Thus people will buy fewer automobiles, houses and other goods. Industries will not borrow money from banks to invest in capacity expansion because borrowing rates are high. 3. Higher interest rates lead to slowdown in the economy. This leads to increase in unemployment because companies start focusing on cost cutting and reduces hiring. Remember Jet Airways lay off over 1000 employees to save cost. 4. Rising inflation can prompt trade unions to demand higher wages, to keep up with consumer prices. Rising wages in turn can help fuel inflation. 5. Inflation affects the productivity of companies. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Solution Monetary Policy The most important and commonly used method is monetary policy. Most central banks use high interest rates and slow growth of the money supply as the traditional ways to fight or prevent inflation. RBI raised CRR, Repo rate and Reverse repo rate to reduce money supply in the economy to fight inflation which was hovering in double digit. High interest rates make borrowing expensive and hence, people as well as corporate borrow less money from banks. This reduced the demand for goods and services such as real estate, automobiles and others.

Fixed Interest Rate As we know high inflation reduced the value of money. A number of smaller countries who do not have sophisticated banking system rely on tying their currency with that of a developed country. Under a fixed exchange rate currency regime, a countrysinglequotes currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold). A fixed exchange rate is usually used to stabilize the value of a currency, vis--vis the currency it is pegged to. Government Measures Apart from these two broad methods, government takes some protectionist measures as well to fight inflation. Government may ban export of essential items such as pulses, cereals and oils to support the domestic consumption and hence reduced their prices. Also, government may lower duties on the import of similar items which are having less supply in the economy

Q6)Calculate the foods inflation rate in India since 1990-91 to till date. Recently India is having high food inflation rate. Discuss the cause, consequence and solution of it

CAUSES 1)Agriculture Sector Decadal Performance The growth rates in the production of key food-grains in India have declined with each passing decade. Average growth in foodgrain production was highest in 1950s and declined in subsequent decades. It briefly improved in the 1990s and reached its lowest in the subsequent decade, when the growth rate in incomes was at its highest pace. Within foodgrains, rice and wheat both recorded average growth rates lower than 1%. Growth rate in pulses was higher in the 2000s decade but has not been enough to keep pace with the changing demand pattern of the Indian population. Another significant feature is the volatility in growth rates which has increased in 1990s and 2000s. 2) Investment in agriculture has declined: In the 1950s, investment in agriculture was 19% of total investments and has declined steadily to touch 8.5% in the 2000s . The growth rate of investments in agriculture has declined in 2000s when total investment in the economy has increased. 3) Dependence on monsoon: Monsoons have always played an important role in Indian economy. With economic growth and improvement in technology we should see a decline in our dependence on the monsoons. However, the dependence on monsoons remains as strong as ever CONSEQANCE a persistent rise in food prices could lead employees to demand higher wages. As food still forms a large percentage of household expenditure for majority of India households, employers might be left with little choice than to raise wages. The higher wages then leads to further rise in demand and again rise in prices. It becomes a classic case of cost-push inflation becoming demand-pull inflation. SOLUTION The investment levels have to be increased. Private sector has to be invited to increase its investment in various agriculture and related activities and there is a need to consolidate and raise farm sizes. From a more micro perspective, there is a need to overhaul the entire supply chain of foodgrain management by the government. shortcomings in all three aspects of food management production, procurement and distribution. All these are long-term issues and cannot be resolved overnight

Q7/8) Briefly, comment on the various fiscal measures implemented by central government to control inflation since 1980-81 to till date.

The most important and commonly used method is monetary policy. Most central banks use high interest rates and slow growth of the money supply as the traditional ways to fight or prevent inflation. RBI raised CRR, Repo rate and Reverse repo rate to reduce money supply in the economy to fight inflation which was hovering in double digit. High interest rates make borrowing expensive and hence, people as well as corporate borrow less money from banks. This reduced the demand for goods and services such as real estate, automobiles and others The government has been slow to wake up to the enormity of the problem and the decline in agriculture sector has not been a focal point of attention. It was seen as a normal transition of an agrarian economy to more productive sectors of an economy. In other economies, similar transition did not mean agriculture production not keeping pace with rising population and incomes. It simply means agriculture became more productive with lesser share of workforce needed to produce the increased output. The Planning Commission was one of the first bodies to see this decline in agriculture. In eleventh plan it proposed to raise agriculture growth to 4% but so far it has been just around 2.2% in its first three years of the eleventh plan (2007-10). Around 7% growth is needed in next two years of the plan. Seeing this as difficult, Planning Commission said around 3% growth was likely in its mid-term evaluation of the Eleventh Plan. The lower growth rate is again disappointing and much more needs to be done. In the Union Budget for 2010-11 the Finance Minister proposed to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa, with the active involvement of Gram Sabhas and the farming families. He also proposed to organise 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas

Q9)

Briefly justify your answer that whether inflation rate in Indian is a monetary or fiscal phenomena or any thing else over the years.
The phenomenon inflation is a result of monetary policy Fiscal policy and various other reasons like 1)Living Standard 2)Change in behavior 3)Cartelization and Hoarding