Chaitanya AwasthiAIR 37 · CSE 2022 · 251 wordsTheir whole copy
Opening · a definition
Inflation is understood to be a persistent rise in the prices of goods and services in a wide basket of variety over a period of time. Moderate inflation is considered to be healthy for an economy as it spurs growth and associated benefits like job creation, economic activity etc. However, when inflation is coupled with a stagnant growth and rising unemployment, it is termed as Stagflation. Such a phenomenon poses a problematic paradox before the policy makers.
Body · points and prose
Inflation Targetting for growth of Indian economy In 2016, Monetary Policy Committee (MPC) was entrusted with the twin objectives of containing inflation and spurring economic growth. On the basis of Urjit Patel Committee, Inflation Targetting was chosen as the mechanism for walking this policy tightrope. MPC ought to adjust benchmark policy rates to keep inflation within a permissible band i.e., 4% +/- 2% for India.
Benefits:
- Objectivity in evaluation
- Non-inflationary environment for growth.
- Encourages economic activity as people adjust their expenditure accordingly.
- Increases confidence and investments by investors.
- Accountability of RBI and Government to public.
Issues:
- Inflation is out of RBI's power to control at times. eg. Supply side inflation due to COVID19
- Overlooking of other parameters. eg. maladministration, sound business practices etc.
- Using CPI has inherent issues such as data accuracy, misassumptions etc..
- Inflation is often a global phenomenon.
RBI can consider the following suggestions:
- Headline change Core Inflation
- Expand ambit of MPC
- Regular updation of basket of goods and services.
Close · a way forward
None written.