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Comments on its solution Reason 1)increase in money in public Incomes rising: The per capita incomes have risen in the 2000s decade tracking rise in GDP and lower population growth , whereas we see decline in food production in the same period. The strong growth is likely to continue and would continue to contribute to higher incomes and demand. 2)Employment Due to increase in employment demand has been increased and this has reflected in increase in inflation 3)Bank Policies Easy policies of banks on loans has increased money in public and this has caused raise inflation
4)Population increase Due to high growth of population , supply is not been able to fulfill the demand in due to this inflation has increased 5)Hoarding
consequences 1. People start consuming or buying less of these goods and services as their income is limited. This leads to slowdown not only in consumption but also production. This is because manufactures will produce fewer goods due to high costs and anticipated lower demand. 2. Banks will increase interest rates as inflation increases otherwise real interest rate will be negative. (Real interest ~ Nominal interest rate – inflation). This makes borrowing costly for both consumers and corporate. Thus people will buy fewer automobiles, houses and other goods. Industries will not borrow money from banks to invest in capacity expansion because borrowing rates are high. 3. Higher interest rates lead to slowdown in the economy. This leads to increase in unemployment because companies start focusing on cost cutting and reduces hiring. Remember Jet Airways lay off over 1000 employees to save cost. 4. Rising inflation can prompt trade unions to demand higher wages, to keep up with consumer prices. Rising wages in turn can help fuel inflation. 5. Inflation affects the productivity of companies. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Solution Monetary Policy The most important and commonly used method is monetary policy. Most central banks use high interest rates and slow growth of the money supply as the traditional ways to fight or prevent inflation. RBI raised CRR, Repo rate and Reverse repo rate to reduce money supply in the economy to fight inflation which was hovering in double digit. High interest rates make borrowing expensive and hence, people as well as corporate borrow less money from banks. This reduced the demand for goods and services such as real estate, automobiles and others.
Government Measures Apart from these two broad methods. Government may ban export of essential items such as pulses.Fixed Interest Rate As we know high inflation reduced the value of money. government takes some protectionist measures as well to fight inflation. A number of smaller countries who do not have sophisticated banking system rely on tying their currency with that of a developed country. A fixed exchange rate is usually used to stabilize the value of a currency. cereals and oils to support the domestic consumption and hence reduced their prices. vis-à-vis the currency it is pegged to. government may lower duties on the import of similar items which are having less supply in the economy . Also. such as gold). a countrysinglequotes currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value. Under a fixed exchange rate currency regime.
procurement and distribution. All these are long-term issues and cannot be resolved overnight . Discuss the cause. shortcomings in all three aspects of food management – production. With economic growth and improvement in technology we should see a decline in our dependence on the monsoons. The higher wages then leads to further rise in demand and again rise in prices. rice and wheat both recorded average growth rates lower than 1%. SOLUTION The investment levels have to be increased. employers might be left with little choice than to raise wages. However. there is a need to overhaul the entire supply chain of foodgrain management by the government.5% in the 2000s . 3) Dependence on monsoon: Monsoons have always played an important role in Indian economy. Average growth in foodgrain production was highest in 1950s and declined in subsequent decades. Private sector has to be invited to increase its investment in various agriculture and related activities and there is a need to consolidate and raise farm sizes. consequence and solution of it CAUSES 1)Agriculture Sector – Decadal Performance The growth rates in the production of key food-grains in India have declined with each passing decade. Within foodgrains. The growth rate of investments in agriculture has declined in 2000s when total investment in the economy has increased.Q6)Calculate the foods inflation rate in India since 1990-91 to till date. Another significant feature is the volatility in growth rates which has increased in 1990s and 2000s. the dependence on monsoons remains as strong as ever CONSEQANCE a persistent rise in food prices could lead employees to demand higher wages. It becomes a classic case of cost-push inflation becoming demand-pull inflation. when the growth rate in incomes was at its highest pace. Recently India is having high food inflation rate. investment in agriculture was 19% of total investments and has declined steadily to touch 8. As food still forms a large percentage of household expenditure for majority of India households. 2) Investment in agriculture has declined: In the 1950s. It briefly improved in the 1990s and reached its lowest in the subsequent decade. From a more micro perspective. Growth rate in pulses was higher in the 2000s decade but has not been enough to keep pace with the changing demand pattern of the Indian population.
The most important and commonly used method is monetary policy. automobiles and others The government has been slow to wake up to the enormity of the problem and the decline in agriculture sector has not been a focal point of attention. Most central banks use high interest rates and slow growth of the money supply as the traditional ways to fight or prevent inflation. The phenomenon inflation is a result of monetary policy Fiscal policy and various other reasons like 1)Living Standard 2)Change in behavior 3)Cartelization and Hoarding . people as well as corporate borrow less money from banks. to enhance the productivity of the dry land farming areas Q9) Briefly justify your answer that whether inflation rate in Indian is a monetary or fiscal phenomena or any thing else over the years.Q7/8) Briefly. RBI raised CRR. Jharkhand. In other economies. Repo rate and Reverse repo rate to reduce money supply in the economy to fight inflation which was hovering in double digit. Around 7% growth is needed in next two years of the plan. with the active involvement of Gram Sabhas and the farming families. similar transition did not mean agriculture production not keeping pace with rising population and incomes. Chattisgarh. In eleventh plan it proposed to raise agriculture growth to 4% but so far it has been just around 2.000 "pulses and oil seed villages" in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting. He also proposed to organise 60. West Bengal and Orissa. Seeing this as difficult. Planning Commission said around 3% growth was likely in its mid-term evaluation of the Eleventh Plan. watershed management and soil health. The lower growth rate is again disappointing and much more needs to be done.2% in its first three years of the eleventh plan (2007-10). In the Union Budget for 2010-11 the Finance Minister proposed to extend the green revolution to the eastern region of the country comprising Bihar. comment on the various fiscal measures implemented by central government to control inflation since 1980-81 to till date. It simply means agriculture became more productive with lesser share of workforce needed to produce the increased output. Eastern UP. It was seen as a normal transition of an agrarian economy to more productive sectors of an economy. High interest rates make borrowing expensive and hence. The Planning Commission was one of the first bodies to see this decline in agriculture. This reduced the demand for goods and services such as real estate.
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