Inflation in India

Since the sweeping reforms in India’s economic and financial policies in the early 1990’s the growth of the economy in India has been rapid.

Major industries in the country responded with massive leaps in growth and GDP figures swelled significantly to what they are today.

This has contributed to rising levels in India’s inflation rates. By July of 2008, the inflation rates had reached eleven percent which was a phenomenal rise from the previous year’s five percent.

Much has been attributed to this problem although many economic experts agree that the huge gap in pricing of agricultural products between the producer level and the consumer level can be apportioned much of the blame.

In addition prices of essential commodities and food products have continued to muscle the inflation in India further to a point where the government is scratching its head trying to find solutions to stem this unhealthy tide.

The Reserve Bank of India has devised several financial models to curb this rise that giving major priority to price stability and sustaining the growth of the economy in India in an attempt to quell the negative sentiments within business circles while raising the Cash Reserve Ratios steadily to arrest the rise in inflation rates.

There was wide skepticism among experts that these new policies would only address the problem in the short term and went ahead to insist that the solution lay in addressing the price disparities between the consumer and producer levels while also increasing the country’s production levels in agriculture. These, they argued, would not only stem the rise in inflation rates but also maintain the country’s economic growth.

Interesting as well is the controversy on how India calculates its inflation rates. Some economists are of the impression that there are serious flaws in the methodology applied to this end and one leading economist in India who was working with the country’s Multi Commodity Exchange came up with a paper detailing how the inflation rate should be calculated.

Generally, he argued that India should shift to using the Consumer Price Index (CPI) like other developed countries as opposed to its present system of using the Wholesale Price Index (WPI).

However, in March 2009, the country recorded the lowest inflation rates in twenty years, thanks to financial remodeling of the economy, to about 5.46% which allowed the government to slash interest rates in a bid to cushion the country from the global financial crisis.