<\/p>\n
News<\/span><\/b>: <\/span>Recently, <\/span>the Monetary Policy Committee<\/span><\/b> has announced its primary focus on inflation or the\u201d <\/span>inflation targeting.<\/span><\/b> Keeping the high inflationary pressure into consideration, the Reserve Bank of India (RBI) has\u202f<\/span>raised the policy repo rate in order to ensure price stability.<\/span>\u00a0<\/span><\/p>\n The wholesale price inflation has been in the double digits for over 12 months. The consumer price index (CPI) has breached the Reserve Bank of India (RBI)\u2019s upper target of 6%.<\/span>\u00a0<\/span><\/p>\n Inflation targeting is based on the idea that inflation is the result of \u201c<\/span>overheating<\/span><\/b>\u201d of the economy. It <\/span>reflects an <\/span>excess of output<\/span><\/b> over its \u2018<\/span>natural\u2019 level.<\/span><\/b>\u00a0<\/span><\/p>\n Therefore, the central bank raised the <\/span>interest rate<\/span><\/b> or \u2018<\/span>repo rate\u2019<\/span><\/b> to control inflation. It is the rate at which the central bank lends to commercial banks. It induces firms to stay their <\/span>investment plans<\/span><\/b>, and focus on<\/span> reducing inventories, <\/span><\/b>and lowering production. This ensures the contraction of the output takes to the natural level of output (i.e., optimal level). This may lead to a decline in inflation. It ensures full employment and freely functioning labour market.\u00a0<\/span>\u00a0<\/span><\/p>\n India\u2019s <\/span>official model of inflation control<\/span><\/b> is based on <\/span>unscientific<\/span><\/b> a foundation. The Indian model is based on the idea to achieve <\/span>\u201cnatural level of output<\/span><\/b>\u201d. However, it is a <\/span>theoretical<\/span><\/b> and unobservable phenomenon. The <\/span>RBI report of 2014<\/span><\/b> did not mention any empirical validity of this model of inflation.\u00a0<\/span>\u00a0<\/span><\/p>\n India\u2019s model is based on the idea that inflation is driven by <\/span>agricultural goods prices<\/span><\/b>. Therefore, the production and supply of agricultural goods should be increased. This would cause the Indian economy to expand without inflation. However, whenever there is <\/span>surplus agricultural production<\/span><\/b>, the government procures food grains at the highest price. This leads to inflation.<\/span>\u00a0<\/span><\/p>\n The growing per capita income in India has shifted the<\/span> average consumption basket <\/span><\/b>towards foods rich in minerals, such as fruits and vegetables, and protein, such as milk and meat. But the expansion of the supply of these foods has been lower than the growth in demand for them.\u00a0<\/span>\u00a0<\/span><\/p>\n Therefore, the RBI\u2019s present move of increasing the repo rate is not an efficient solution for an <\/span>agricultural price-driven inflation<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n Way Forward<\/span><\/b>\u00a0<\/span><\/p>\n Monetary policy can control inflation by curbing the growth of <\/span>non-agricultural output. <\/span><\/b>This would in turn lower the growth of demand for agricultural goods. As the demand for agricultural goods slows, so will inflation.<\/span>\u00a0<\/span><\/p>\n There should be a focus to increase the <\/span>supply<\/span><\/b> of food other than rice and wheat like <\/span>fruits<\/span><\/b>, <\/span>vegetables<\/span><\/b>, <\/span>milk<\/span><\/b> and <\/span>meat<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n The government should work hard towards increasing <\/span>agricultural productivity<\/span><\/b> and thereby increasing agricultural production and supply.<\/span>\u00a0<\/span><\/p>\n Source<\/span><\/b>: The post is based on an article \u201cInflation control needs another model<\/strong>\u201d published in the Hindu<\/strong> on 05<\/strong><\/span>th<\/strong> May 2022<\/strong>.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" News: Recently, the Monetary Policy Committee has announced its primary focus on inflation or the\u201d inflation targeting. Keeping the high inflationary pressure into consideration, the Reserve Bank of India (RBI) has\u202fraised the policy repo rate in order to ensure price stability.\u00a0 Status of inflation in India\u00a0 The wholesale price inflation has been in the double… Continue reading Inflation control needs another model\u00a0<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10498],"class_list":["post-182916","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704661942},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/182916","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=182916"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/182916\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=182916"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=182916"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=182916"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Status of inflation in India<\/span><\/b>\u00a0<\/span><\/h5>\n
What is Inflation targeting?<\/span><\/b>\u00a0<\/span><\/h5>\n
What are the issues in inflation targeting in India?<\/span><\/b>\u00a0<\/span><\/h5>\n