Inflation is rate at which general level of prices for goods and services rises. There are certain factors which causes inflation such as increase in money supply,rise in government spending, rise in purchasing power,low supply of goods. Let us elaborate more on the causes.
India is second largest country in terms of population. The demand of food commodities is very high. If our agricultural output doesn’t meet the staggering demand of ever increasing population then prices of food commodities are going to increase. There are lots of problem with infrastructure related to agriculture, lack of proper storage facility, poor seeds being used, no education about right usage of synthetic fertilizers makes soil infertile hence reducing output. One of the biggest problem being irrigation facility, since a big part of India’s agricultural land depends on rain for irrigation this makes output unpredictable. All these factors causes lack in supply of food commodities causing inflation.
Higher purchasing power of people increases the demands of goods. When people have more money in their hand their ability to consume increase but if same increment cannot be observe in supply side , it results in a gap in demand and supply, causing inflation. To help poor, underprivileged people of India, GOI has started many schemes such as MGNREGA,SGRY,Direct Cash Transfer Scheme etc. In all of these government put money in the hand of people , which increases the purchasing power of individual.
Increase in price of any commodities like petrol and diesel will have cascading effect. Since most of the goods and raw materials have to be transported, increase in fuel price will increase the price of such goods. It can be seen as increase in crude oil causes, increase in raw material price because of transportation, increase in manufacturing cost because machinery runs on diesel, increases in transportation cost of final product. Overall increase in price of goods hence inflation.
How to tackle inflation ? RBI is the body in India which takes decisions regarding monetary policies and controlling inflation is one of the salient feature of RBI. One way to control inflation is by changing Repo Rate. Repo Rate is the rate at which RBI lends money to commercial banks. If repo rate is high that means commercial banks will not borrow much money from RBI . This will reduce the money supply in the market, because easy loans will not be available to common people. On the other hand if RBI decreases repo rate banks will provide easy loans hence increasing money supply in market, which increases purchasing power, resulting in high inflation.
But if you look at the bigger picture the best way to tackle the problem is by improving our infrastructure , improving productivity of industries, improving irrigation facilities, improving transportation facilities which can reduce the cost of production.
It is always good to tackle the root causes of a problem , and if we improve our infrastructure it will certainly help in long run