Pow 1o ConLrol lnflaLlon

1here are broadly Lhree ways of conLrolllng lnflaLlon ln an economy

1 MoneLary Measures
2 llscal Measures
3 CLher Measures
I Monetary measures 1he moneLary measures used Lo conLrol
lnflaLlon are
l 8ook tote pollcy lL ls used as Lhe maln lnsLrumenL of moneLary
conLrol durlng Lhe perlod of lnflaLlon When Lhe cenLral bank
ralses Lhe bank raLe lL ls sald Lo have adopLed a dear money
pollcy 1he lncrease ln bank raLe lncreases Lhe cosL of borrowlng
whlch reduces commerclal banks borrowlng from Lhe cenLral
bank ConsequenLly Lhe flow of money from Lhe commerclal
banks Lo Lhe publlc geLs reduced
ll Iotloble kesetve kotlo 1o conLrol lnflaLlon Lhe cenLral bank ralses
Lhe Cash 8eserve 8aLlo(C88) and SLaLuLory LlquldlLy 8aLlo(SL8)
whlch reduces Lhe lendlng capaclLy of Lhe commerclal banks
ConsequenLly flow of money from commerclal banks Lo publlc
decreases ln Lhe process lL conLrols Lhe rlse ln prlces Lo Lhe
exLenL lL ls caused by banks credlLs Lo Lhe publlc
lll Opeo Motket Opetotloos Cpen markeL operaLlons refer Lo sale
and purchase of governmenL securlLles and bonds by Lhe cenLral
bank 1o conLrol lnflaLlon cenLral bank sells Lhe governmenL
securlLles Lo Lhe publlc Lhrough Lhe banks 1hls resulLs ln Lransfer
of a parL of bank deposlLs Lo cenLral bank accounL and reduces
credlL creaLlon capaclLy of Lhe commerclal banks
II I|sca| Measures llscal measures are hlghly effecLlve for conLrolllng
governmenL expendlLure personal consumpLlon expendlLure and
prlvaLe and publlc lnvesLmenL 1he prlnclpal flscal measures are Lhe
followlng
l keJoctloo lo uooecessoty xpeoJltote 1he governmenL should reduce
unnecessary expendlLure on nondevelopmenL acLlvlLles ln order Lo
curb lnflaLlon 1hls wlll also puL a check on prlvaLe expendlLure whlch ls
dependenL upon governmenL demand for goods and servlces 8uL lL ls
noL easy Lo cuL governmenL expendlLure 1herefore Lhls measure
should be supplemenLed by LaxaLlon
ll locteose lo 1oxes 1o cuL personal consumpLlon expendlLure Lhe raLes
of personal corporaLe and commodlLy Laxes should be ralsed and even
new Laxes should be levled buL Lhe raLes of Laxes should noL be so
hlgh as Lo dlscourage savlng lnvesLmenL and producLlon lurLher Lo
brlng more revenue lnLo Lhe neL Lax Lhe governmenL should penallze
Lhe Lax evaders by lmposlng heavy flnes Such measures are bound Lo
be effecLlve ln conLrolllng lnflaLlon
lll 9obllc uebt CovernmenL should sLop repaymenL of publlc debL and
posLpone lL Lo some fuLure daLe Llll lnflaLlonary pressures are conLrolled
wlLhln Lhe economy lnsLead Lhe governmenL should borrow more Lo
reduce money supply wlLh Lhe publlc
III Cther Measures lL lncludes
l 1o locteose 9toJoctloo 1he followlng measures should be adopLed Lo
lncrease producLlon
W Cne of Lhe foremosL measures Lo conLrol lnflaLlon ls Lo lncrease Lhe
producLlon of essenLlal consumer goods llke food cloLhlng kerosene
oll sugar vegeLable olls eLc
W lf Lhere ls need raw maLerlals for such producLs may be lmporLed on
preferenLlal basls Lo lncrease Lhe producLlon of essenLlal commodlLles
W All posslble help ln Lhe form of laLesL Lechnology raw maLerlals
flnanclal help subsldles eLc should be provlded Lo dlfferenL consumer
goods secLors Lo lncrease producLlon
ll 9tlce coottol rlce conLrol and raLlonlng ls anoLher measure of dlrecL
conLrol Lo check lnflaLlon rlce conLrol means flxlng an upper llmlL for
Lhe prlces of essenLlal consumer goods 1hey are Lhe maxlmum prlces
flxed by law and anybody charglng more Lhan Lhese prlces ls punlshed by
law
lll kotloool woqe 9ollcy AnoLher lmporLanL measure ls Lo adopL a raLlonal
wage and lncome pollcy under hyperlnflaLlon Lhere ls a wageprlce
splral 1o conLrol Lhls Lhe governmenL should freeze wages lncomes
proflLs dlvldends bonus eLc 8uL such a drasLlc measure can only be
adopLed for a shorL perlod 1herefore Lhe besL course ls Lo llnk lncrease
ln wages Lo lncrease ln producLlvlLy 1hls wlll have a dual effecL lL wlll
conLrol wage and aL Lhe same Llme lncrease producLlvlLy