Is Inflation in India Structural or Monetary?
Inflationary Situation: It’s a situation in the economy where ‘too much money is chasing too few goods’. So when the products & services available are less as compared to the money supply in the money market, the economy witnesses an uptrend in their prices in order to adjust for the larger quantum of money chasing them. Structural Policy: A Structural policy is a term used for the whole of the politico-economic measures for the organization of the structure of the national economy of a state. A Structural policy is further categorized as * Regional structural policy, which supports the settlement of industries in assisted areas by measures of the investment assistance * Sparkling wine-oral structural policy, those by subsidies and tax preferences Monetary Policy: It refers to the process by which a country’s central bank controls money supply, often through the manipulation of interest rates, with the aim of promoting economic growth and stability while maintaining relatively stable prices and low unemployment. Monetary policy is either expansionary (mainly by lowering interest rates to combat a recession or a recessionary situation) or contractionary (raising interest rates to control inflation). Comment:
Inflation in India is primarily structural and less monetary in outlook. Some data points supporting this point of view are as below: * Food Inflation – As it has been seen historically, the dietary patterns of the population change with increase in their incomes. As the incomes cross an inflection point, the pattern changes and a shift if observed from Carbohydrate-rich diets to protein-rich diets. As a result the food inflation rose sharply after May 2010 due to shift in dietary habits towards protein-rich food items like pulses, milk, fish and eggs. Subsequently these structural changes have triggered inflation as the Supply response has not been adequate especially in terms of the protein items. *...
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