Inflation in the India | Schemes and Mind Maps Economics

Inflation:Causes and Impacts - IN NEWS | Drishti IAS English

Drishti IAS : English

Inflation from the Perspective of GS Mains Paper 3

Inflation is a crucial topic from the perspective of both the GS Mains Paper 3 and the

preliminary examination. In this segment, we will discuss the reasons behind the current

inflation rate hike and other related topics.

Current Inflation Rate

The inflation rate for April 2022 has breached an all-time high of the last eight years. The

current inflation rate is 7.79%, which is above the band of two to six percent set by the

Monetary Policy Committee of India.

What is Inflation?

Inflation refers to the general rise in the prices of goods and services. The value of the

currency falls, and consequently, the purchasing power of the currency declines. This can be

caused by various factors such as demand-pull inflation, cost-push inflation, and built-in

inflation. These factors are influenced by demand-supply, fiscal policy, and the cost of

production of goods.

Measuring Inflation

The Consumer Price Index (CPI) and Wholesale Price Index (WPI) are the two essential

tools used to measure inflation. The CPI is used to measure retail inflation and has a base

year of 2012. The CPI has many constituents, including food, fuel, and other items. The

current inflation rate is mainly driven by the rise in fuel and food prices.

Impact of Inflation

The rise in fuel prices has led to generalized inflation that impacts every product in the

economy. Transport and communication inflation have also increased, and miscellaneous

goods and services have witnessed over six percent inflation for 23 consecutive months.

The industrial output for March showed a growth of 1.9%, with manufacturing output

accounting for 77.6%.

Reasons for Inflation

The Russian-Ukraine war has worsened the fuel prices, but inflation has been rising since

October 2019. Other factors that have contributed to inflation include non-performing assets

of banks, twin balance sheet problems, and infrastructure-related issues.

Inflation and its Impacts on the Economy

Inflation is the rate at which the general price level of goods and services in an economy

continuously increases over time. It is one of the most critical economic indicators that

influences various aspects of an economy, including the purchasing power of money,

demand, savings, government debt obligations, corporates, and exchange rates. This article

discusses the impacts of inflation on the economy and the hopes for the future.

Causes of Inflation in India

India has been experiencing inflation for a long time, and various factors contribute to it,

including:

Partial preview of the text

Download Inflation in the India and more Schemes and Mind Maps Economics in PDF only on Docsity!

Inflation:Causes and Impacts - IN NEWS | Drishti IAS English Drishti IAS : English Inflation from the Perspective of GS Mains Paper 3 Inflation is a crucial topic from the perspective of both the GS Mains Paper 3 and the preliminary examination. In this segment, we will discuss the reasons behind the current inflation rate hike and other related topics. Current Inflation Rate The inflation rate for April 2022 has breached an all-time high of the last eight years. The current inflation rate is 7.79%, which is above the band of two to six percent set by the Monetary Policy Committee of India. What is Inflation? Inflation refers to the general rise in the prices of goods and services. The value of the currency falls, and consequently, the purchasing power of the currency declines. This can be caused by various factors such as demand-pull inflation, cost-push inflation, and built-in inflation. These factors are influenced by demand-supply, fiscal policy, and the cost of production of goods. Measuring Inflation The Consumer Price Index (CPI) and Wholesale Price Index (WPI) are the two essential tools used to measure inflation. The CPI is used to measure retail inflation and has a base year of 2012. The CPI has many constituents, including food, fuel, and other items. The current inflation rate is mainly driven by the rise in fuel and food prices. Impact of Inflation The rise in fuel prices has led to generalized inflation that impacts every product in the economy. Transport and communication inflation have also increased, and miscellaneous goods and services have witnessed over six percent inflation for 23 consecutive months. The industrial output for March showed a growth of 1.9%, with manufacturing output accounting for 77.6%. Reasons for Inflation The Russian-Ukraine war has worsened the fuel prices, but inflation has been rising since October 2019. Other factors that have contributed to inflation include non-performing assets of banks, twin balance sheet problems, and infrastructure-related issues. Inflation and its Impacts on the Economy Inflation is the rate at which the general price level of goods and services in an economy continuously increases over time. It is one of the most critical economic indicators that influences various aspects of an economy, including the purchasing power of money, demand, savings, government debt obligations, corporates, and exchange rates. This article discusses the impacts of inflation on the economy and the hopes for the future. Causes of Inflation in India India has been experiencing inflation for a long time, and various factors contribute to it, including:

The twin balance sheet problem and non-performing assets (NPA) in the banking sector. Unemployment and lack of skill upgradation. The Russian-Ukrainian war, which impacted oil and energy prices. High retail inflation since October 2019. Impacts of Inflation on the Economy Inflation has both positive and negative impacts on the economy, depending on the groups it is affecting. Some of its impacts include: Decreased purchasing power of money, leading to increased prices of goods and services. Decreased demand for non-essential goods, leading to losses in industries such as tourism. Positive impact on borrowers, as the real value of their debt decreases. Negative impact on savers, as the real value of their savings decreases. Improved fiscal deficit due to the rise in nominal GDP. Mixed impact on corporates, as they might pass on the burden of inflation to their consumers, leading to decreased demand. Worsening of the exchange rate system, leading to a weaker rupee against the dollar. Increased expectations of higher inflation in the future, leading to decreased market sentiment and foreign investments. Decreased consumption and profit margins of listed entities due to increased interest rates. Hopes for the Future There seems to be no end in sight for the Russian-Ukrainian war, and protracted tensions could create more issues for the economy. However, the accommodative stance of the government and the RBI could help for some time. Weak consumption demands might witness more headwinds in the coming days, and investment climate will get affected. Conclusion Inflation is a crucial economic indicator that influences various aspects of an economy. While it has both positive and negative impacts, it is crucial to address its causes and take measures to mitigate its effects on the economy.

Inflation in the India, Schemes and Mind Maps of Economics

Partial preview of the text

Download Inflation in the India and more Schemes and Mind Maps Economics in PDF only on Docsity!