As the monetary policy needs to stay accommodative, it is time for Reserve Bank of India to take measures to soften the inflation blow. Explain (200 Words)
Refer - The Indian Express
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Karthik ramakrishnan 3 years
Accommodative monetary policy is followed when the central banks consider that it is necessary to increase the money supply in the economy to boost the economy, the COVID – 19 pandemic and the subsequent fall in demand in the Indian economy is the reason why RBI is continuing with this policy. However, it must be noted that increased money supply in the economy may result in inflation. Inflation in an economy can be controlled in the following ways à
| Monetary Measures (×) | ü Fiscal Measures | ||||
| Credit Control | Demonetization | Issue of new currency | Reduction in unnecessary expenditure | Increase in Direct taxes | Decrease in Indirect taxes |
| It is achieved through repo operations. | Considering the most recent experience, implementation of this will have political ramifications. | It is done in dire situations when the economy creeps into hyperinflation. Example: Issue of German Mark was discontinued and Rentenmark was issued in 1930s to control hyperinflation |
| Increase in taxes like income tax will again lead to discontent among taxable population. | Slashes to GST can be done to reduce prices. |
| Trade Measures (Supply side intervention) |
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| Higher supply would bring down costs. |
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| ü Administrative Measures |
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| Rational Wage Policy | Price Control | Rationing |
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| Maximum ceiling on prices of goods and services can help in limiting the ill effects of inflation. | Rationing of goods in short supply keeps demand under control which brings the prices down. |
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Hence the government and the RBI can blunt the impact of inflation using fiscal and administrative measures.
IAS Parliament 3 years
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IAS Parliament 3 years
KEY POINTS
· Rising inflation hurts lenders and benefits borrowers. The government, one of the biggest borrowers, stands to benefit as high inflation will lower the national debt load in relation to the size of the economy.
· The Union budget 2021-22 assumed a 14.4 per cent growth in nominal GDP, actual growth is set to exceed over 16 per cent as per estimates.
· But nominal GDP estimate has gone up from 15 per cent to around 16.5 per cent as we now expect WPI and CPI to average 7.4 per cent and 5.3 per cent respectively.
· Lower food inflation, coupled with higher non-food inflation means reduced purchasing power for farmers the terms of trade.
· Inflation trends, specifically input prices (reflected better by WPI), matter for corporate performance as well.
· The RBI will have to closely monitor inflation trends and calibrate its policy response. It has not intervened on high inflation since the onset of the pandemic and, rightly so, in order to support growth.
· But the current spell of inflation is over a high base and a continuation of recent trends will persuade it to turn the focus back on inflation.
· Rising inflation reduces returns on fixed income instruments, including bank deposits, which account for over 50 per cent of households’ financial savings.
· This has already induced a shift to riskier asset classes such as equities, which has ramifications for overall financial stability.
Cibi Siddharth 3 years
kindly review and provide suggestions mam/sir
IAS Parliament 3 years
Try to mention about food inflation. Keep Writing.
Abdul hakkim 3 years
Please review mam/sir
Thanks
IAS Parliament 3 years
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VINONA KARMY 3 years
Kindly review.Thank you
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IAS Parliament 3 years
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