We are right now in a state of Low growth and High inflation which will lead us to "STAGFLATION".
This question is giving sleepless nights to RBI and Indian government.
So how can we tackle this issue?
Let us first see why is inflation Rising. The main culprits are
1.)Demand- Supply mismatch in food.
2.)Increase in prices of Crude Oil, Metals.
3.)Increase in prices of non-food items like fibres, oilseeds
Till now government is focusing towards only Monetary measures like increasing the CRR, Repo Rate, Reverse Repo. Despite incresing interest rates for 12 times in past 18 months , inflation has not come under control. It is now starting affecting the economy with higher interest rates and hence Higher EMI's. Now we must focus more towards strengthening our Fiscal policies like taxation, import and export duties handling etc.
One of the main reason for inflation is increasing crude oil prices, which is not under our control but what we can do is to decrease our dependency on imported fuels and look for alternate opportunities in the form of Natural gas and Renewable sources of energy.
The Demand-Supply Mismatch can be addressed by revolutionizing the agriculture sector for better prospects.
We must think of Long-term, in future, population is going to increase but land available for agriculture is reducing due to urbanization and bad agriculture practices. Moreover, we have to work on Public Distribution System(PDS) . much of our food grains get rotten away lying in the godowns(and sometimes lying in open air due to lack of godowns).
As long as we are dependent on Imports for fulfilling our need of non-food items and Crude oil, Inflation will hurt us. We have to reduce our dependency on exports and become self-sufficient.
We must have a Long-Term perspective in our mind and think of policies which will help in reducing the inflation in the long-run.
This question is giving sleepless nights to RBI and Indian government.
So how can we tackle this issue?
Let us first see why is inflation Rising. The main culprits are
1.)Demand- Supply mismatch in food.
2.)Increase in prices of Crude Oil, Metals.
3.)Increase in prices of non-food items like fibres, oilseeds
Till now government is focusing towards only Monetary measures like increasing the CRR, Repo Rate, Reverse Repo. Despite incresing interest rates for 12 times in past 18 months , inflation has not come under control. It is now starting affecting the economy with higher interest rates and hence Higher EMI's. Now we must focus more towards strengthening our Fiscal policies like taxation, import and export duties handling etc.
One of the main reason for inflation is increasing crude oil prices, which is not under our control but what we can do is to decrease our dependency on imported fuels and look for alternate opportunities in the form of Natural gas and Renewable sources of energy.
The Demand-Supply Mismatch can be addressed by revolutionizing the agriculture sector for better prospects.
We must think of Long-term, in future, population is going to increase but land available for agriculture is reducing due to urbanization and bad agriculture practices. Moreover, we have to work on Public Distribution System(PDS) . much of our food grains get rotten away lying in the godowns(and sometimes lying in open air due to lack of godowns).
As long as we are dependent on Imports for fulfilling our need of non-food items and Crude oil, Inflation will hurt us. We have to reduce our dependency on exports and become self-sufficient.
We must have a Long-Term perspective in our mind and think of policies which will help in reducing the inflation in the long-run.
Sahil Singla
MBA 2011-2013
SIBM Bangalore
https://www.facebook.com/sibm.b
