Inflation and its measures

INFLATION:- It can be defined as the persistent rise in general price level. A country is said to be in inflationary pressure when there is  excess of demand for everything causing an overall rise in price

Control of inflation :-

-SUPPLY MANAGEMENT 

·         Government has to resort the open market sale of rice and wheat through the (FCI) Food Corporation of India. FCI keeps a buffer stock of food grains built through procurement and market purchase of these items. So when the prices of these items are subject to rise FCI enters the market as a seller to supplement market supplies and thus reduce pressure on prices.  

·         -The network of( PDS) Public Distribution System  and (FPS) Fair Price Shop should be strengthened so that essential goods are made available to the masses at reasonable prices.

·         -PDS ensures that even the weaker sections of society are guaranteed a certain minimum number of essential goods at subsidized prices.

·         -PDS under which essential commodities such as wheat, rice, sugar, kerosene, edible oil, etc, are made available to the people via FPS. Each FPS is envisaged to serve around two thousand persons.

-DEMAND MANAGEMENT

-In the realm of monetary policy CRR and raising of bank rate as well as selective credit control measures should be taken.

-CRR- Cash Reserve Ratio –Minimum ratio of the total deposits of the customers that each commercial bank has to maintain with the RBI, means banks don’t have access to that much amount for any commercial or economic activity.

-By raising CRR the RBI takes away more money from the banks and reduces the amount left with them for lending to public. Present CRR is 4%.

-Repo Rate- Rate at which RBI lends to commercial banks in the event of any shortfall of funds.

-During inflation RBI increases repo rate as this acts as disincentive for banks to borrow from RBI. The ultimately reduces the supply of money in the economy and thus helps in arresting inflation.

-Present Repo Rate is 8.00%

Reverse Repo Rate- Rate at which the RBI borrows money from the commercial banks within the country.

-An increase in the RRP will decrease the money supply in the economy and vice-versa other things remains constant.

-It means banks will get more incentives to park their funds with the RBI and have less money to lend, thereby decreasing the supply of money in the market.

-Present Reverse Repo Rate is 7.00%

-Among fiscal measures Government should economize the non-development expenditure and unproductive administrative