High Inflation and Weak Economic Growth by Vasant G. Gandhi SignUp
Boloji.com
Boloji
Home Kabir Poetry Blogs BoloKids Writers Contribute Search Contact Site Map Advertise RSS Login Register
Boloji
Channels

In Focus

Analysis
Cartoons
Education
Environment
Going Inner
Opinion
Photo Essays

Columns

A Bystander's Diary
Business
My Word
PlainSpeak
Random Thoughts

Our Heritage

Architecture
Astrology
Ayurveda
Buddhism
Cinema
Culture
Dances
Festivals
Hinduism
History
People
Places
Sikhism
Spirituality
Vastu
Vithika

Society & Lifestyle

Family Matters
Health
Parenting
Perspective
Recipes
Society
Teens
Women

Creative Writings

Book Reviews
Ghalib's Corner
Humor
Individuality
Literary Shelf
Love Letters
Memoirs
Musings
Quotes
Ramblings
Stories
Travelogues
Workshop

Computing

CC++
Computing Articles
Flash
Internet Security
Java
Linux
Networking
Opinion Share This Page
High Inflation and Weak Economic Growth
by Vasant G. Gandhi Bookmark and Share
 

Stubborn inflation and sputtering economy are giving Reserve Bank of India a headache.  The central bank in past three years raised short term interest rate 12 times expecting the demand for money to decline, the economy to cool, and the inflation to die.  The economy has slowed down but the inflation persists.  Now, it appears that Reserve Bank is nervous about the weak economy, so last month it lowered the interest rate to spur the economic growth.
 
However, it is not possible to lower the inflation and improve the growth at the same time.  It is like a cricket bowler trying to out two batsmen at the same time, one is betting while the other is standing at the opposite end of the wicket.
 
Inflation means one is paying more for an item or a service than one used to, and many of the more important causes are listed below.

  • Bribe-takers:  Corruption is rampant; bribe-takers frequently rush to buy whatever they can to get rid of their ill-gotten cash. Consequently, they demand more goods and services relative to what is available in the market, causing the prices to go up. 
     
  • Black money:  It is a significant player in fueling the inflation and affects the same way as corruption.  RBI can control white money supply via interest rate, but cannot control black money supply.
     
  • Imports:  We import oil from other countries to produce petroleum products including petrol for our vehicles.  And every time prices of imported oil go up or the value of rupee goes down, we pay higher prices at pump.  This is true for everything we import.
     
  • Government:  Most of the time money spent by governments – central, state, or local – is being wasted.  Welfare, training, subsidy, and others government programs do not yield good results and add to inflation.
     
  • Shortages:  If supply is less than demand, then a price of a product will go up.  The supply can be less for many reasons; for example, poor rain will produce less grains and vegetables.
     
  • Workers:  If wages rise faster than productivity, then labor cost per unit will increase.  Businesses will then pass higher cost of labor to consumers in the form of higher prices.
     
  • Businesses:  Sometimes corporations and owners raise prices in order to increase their profit margin.
     
  • Low productivity:  If factories, offices, shops, and other facilities do not install modern tools and employ latest technology then workers won’t be able to produce goods in high volume or provide rapid services at least cost and waste.  This means low output at high prices and hurts everyone.
     
  • Damages:  Terrorists, mishaps, and disasters cause property damage and injure or kill humans.  Helping families of hurt and killed, and rebuilding properties, require money which otherwise could be better spent elsewhere.

Here are two of many solutions.  

One, Reserve Bank of India need not concentrate on controlling inflation via interest rate.  Instead, they need to soak up an excessive money supply, black and white.  

Two, for a few years, the ministry of finance  should collect zero income taxes from businesses (manufacturers, whole sellers, retailers, and service-providers) operating in developing states and union territories such as Andaman Nicobar Islands, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand, JK, Lakshadweep, Manipur, Meghalaya, Mizoram, MP, Nagaland, Sikkim, Tripura, and UP.  

The idea to free businesses from income tax burden is to encourage them to hire more people and increase the supply of goods and services.  Their actions will boost economic growth, increase employment, reduce inflation, and indirectly reduce the violence.
  
Images (c) Gettyimages.com 
 

28-May-2012
More by :  Vasant G. Gandhi
 
Views: 1027
 
Top | Opinion







    A Bystander's Diary     Analysis     Architecture     Astrology     Ayurveda     Book Reviews
    Buddhism     Business     Cartoons     CC++     Cinema     Computing Articles
    Culture     Dances     Education     Environment     Family Matters     Festivals
    Flash     Ghalib's Corner     Going Inner     Health     Hinduism     History
    Humor     Individuality     Internet Security     Java     Linux     Literary Shelf
    Love Letters     Memoirs     Musings     My Word     Networking     Opinion
    Parenting     People     Perspective     Photo Essays     Places     PlainSpeak
    Quotes     Ramblings     Random Thoughts     Recipes     Sikhism     Society
    Spirituality     Stories     Teens     Travelogues     Vastu     Vithika
    Women     Workshop
RSS Feed RSS Feed Home | Privacy Policy | Disclaimer | Site Map
No part of this Internet site may be reproduced without prior written permission of the copyright holder.
Developed and Programmed by ekant solutions