From the past six months, every Thursday in the evening we all see that the inflation number comes with the higher rate. Inflation rises every week with the average of 25 basis points. Today the inflation numbers breaking all records & comes to 16 years high at 12.44%, which is last week is at 12.01%. Now the economists estimates that inflation can touch to 13% & can even go higher.
To bring inflation down, RBI the reserve bank of India takes many monetary measures. It tightens the monetary policy by increasing the interest rates, which in turns slowdown the growth. The tight monetary policy stance clearly signals that while the trade-off between inflation and growth is worsening, the central bank's focus is on curtailing aggregate demand pressures to rein in inflation.
While the measures will have an adverse impact on demand through higher interest rates, which are bound to increase, given the tight liquidity conditions, the threat that rising inflationary expectations poses to medium-term growth performance is real and justifies the aggressive anti-inflationary stance taken by the RBI, even if it comes at some cost in the form of slower growth in the immediate future.
The new figure comes as countries across the region grapple with how to balance rising inflation - much of which has been imported in the form of high commodities prices - with slowing economic growth.
Also on the revenue side, the government has improved tax collection - the Ministry of Finance says tax revenues have risen 300 percent in the last four years - but as slowing growth takes a toll on corporate profits, tax rolls, too, may dwindle.
When you have high growth rates, it leads to supply-side stress," Nath said. "On the other hand, a large part of this inflation is imported.""For imported inflation, there's little you can do other than subsidize," he added.
However, as the supply-side scenario improves, the inflationary pressures are likely to ease in the longer-term, National Council of Applied Economic Research (NCAER) said in its macro track monthly report. In the longer-term, the country's policy makers will have to address the twin concerns of demand pressure and subsequent high rate of inflation, NCAER said.
A cooling US economy has helped the country sustain the economic growth momentum in the second half of last fiscal, NCAER said.
Meanwhile, the net impact of government's Rs 71,000 crore loan waiver scheme and the recommendations of Sixth Pay Commission, is likely to stimulate the consumption demand in the months ahead, NCAER said.
Besides a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investor confidence and led to foreign capital outflow, thus led the rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007.
Inflation is expected to average 9.95 per cent in 2008/09, way above the 5.55 per cent forecast in March, with rising global oil and food prices driving the revision. Finance Minister Palaniappan Chidambaram has said inflation would stay in double digits for some weeks, and may start moderating after three months.
That's the reason we are seeing growth moderating. In the current fiscal year economists projected that India's growth should be between 7 to 7.5 % as compared to 9% last year. This rise in inflation gives a huge set-back to the India's growth.
To bring inflation down, RBI the reserve bank of India takes many monetary measures. It tightens the monetary policy by increasing the interest rates, which in turns slowdown the growth. The tight monetary policy stance clearly signals that while the trade-off between inflation and growth is worsening, the central bank's focus is on curtailing aggregate demand pressures to rein in inflation.
While the measures will have an adverse impact on demand through higher interest rates, which are bound to increase, given the tight liquidity conditions, the threat that rising inflationary expectations poses to medium-term growth performance is real and justifies the aggressive anti-inflationary stance taken by the RBI, even if it comes at some cost in the form of slower growth in the immediate future.
The new figure comes as countries across the region grapple with how to balance rising inflation - much of which has been imported in the form of high commodities prices - with slowing economic growth.
Also on the revenue side, the government has improved tax collection - the Ministry of Finance says tax revenues have risen 300 percent in the last four years - but as slowing growth takes a toll on corporate profits, tax rolls, too, may dwindle.
When you have high growth rates, it leads to supply-side stress," Nath said. "On the other hand, a large part of this inflation is imported.""For imported inflation, there's little you can do other than subsidize," he added.
However, as the supply-side scenario improves, the inflationary pressures are likely to ease in the longer-term, National Council of Applied Economic Research (NCAER) said in its macro track monthly report. In the longer-term, the country's policy makers will have to address the twin concerns of demand pressure and subsequent high rate of inflation, NCAER said.
A cooling US economy has helped the country sustain the economic growth momentum in the second half of last fiscal, NCAER said.
Meanwhile, the net impact of government's Rs 71,000 crore loan waiver scheme and the recommendations of Sixth Pay Commission, is likely to stimulate the consumption demand in the months ahead, NCAER said.
Besides a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investor confidence and led to foreign capital outflow, thus led the rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007.
Inflation is expected to average 9.95 per cent in 2008/09, way above the 5.55 per cent forecast in March, with rising global oil and food prices driving the revision. Finance Minister Palaniappan Chidambaram has said inflation would stay in double digits for some weeks, and may start moderating after three months.
That's the reason we are seeing growth moderating. In the current fiscal year economists projected that India's growth should be between 7 to 7.5 % as compared to 9% last year. This rise in inflation gives a huge set-back to the India's growth.
by: Vivek Mittal
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