Inflation in India

Inflation is defined as sustained general price rise in an Economy. To a certain limit,

inflation is good for the growth of any economy as it facilitates increase in
production capacity and thus overall growth. It is only when it crosses a
comfortable range , that it becomes a bottleneck for economic development.
Negative real interest, widening gap between the rich and poor, currency
depreciation are some of the major consequences of high inflation which affects all
section of the society in the long run.
Unlike developed economies, demand-supply mismanagement is not the sole factor
for inflation in India. Ill-structured social sector schemes, lack of infrastructure and
technology , pilferage and behavior of Indian investors are also the driving factors
for the prolonged problem of inflation in India. Much of the Inflation in India is due to
spike in fuel and food prices. Constant geopolitical disturbances in Middle East
countries which are a major source of fuel supply in India has led to sharp rise in
Fuel prices
More than half of the inflation in CPI is because of food inflation. Food Inflation is
mostly driven by domestic factors . There has been a shift consumption pattern due
to Increased per capita income,urbanization, changing lifestyle causing a spike in
prices of the vegetable, milk, meat , fruits sugar, edible oil etc. Supply-side
constraints such as High Input costs (High prices of imported fertilizers etc.) , High
transportation costs(due to hiked fuel prices) etc has led to a cost-push food
inflation. The agricultural productivity is too far from achieving the global standards
owing to the factors like dependence on traditional methods of farming, lack of
irrigation facilities etc. in addition to this policies such as administered prices,
administered wages( provided under MNEREGA) are other causes worsening the
problem of food inflation.
Apart from the food and fuel inflation , India is also affected by Asset driven
inflation. Whenever there is an excess of money supply in Indian economy , Indians
invest them in Gold or real assets rather than in other investment options. This
leads to increase in demand and consequently the prices of these assets. The
resulting inflation, in turn, feeds a hunger for high return assets, giving rise to an
inflationary spiral. This kind of inflation widens the rich-poor gap as the sectors
require huge capital investment which only a small percentage of Indians can afford.
Thus Inflation in India is a complex problem, solution for which requires a lot of
introspection on behalf of the government as well as RBI. A proper mix of
monetary, fiscal and structural measures need to be implemented to curb the
menace of high inflation.