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Apr 7, 2008

Measures to check the inflation?

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The inflation touches three year high figure mark in India and this is a tough time for the government for immediate check on inflation. The government of India has initiated measures to check the inflation and now the Reserve Bank of India (RBI) to initiated its measures to check the high inflation rate. RBI acts as custodian to the government and is very effective in checking inflation through various measures.
The two factors - demand and supply are essential to study the price mechanism. In the case of inflation - rise in price level caused through these two factors. Lets consider the supply of the inflation, the inflation would a result of excessive increase in money supply in the face of an inelastic supply of goods and services. If the supply does not match the demand of the product, then there would be rise in price. In order to check the supply side inflation the government may plan to maintain the supply of goods and services into the market. However,s considering the current scenario in India, the government has also took measures to maintain the supply intact into the market.

Apart from that, the government of India may also opt measures like - Credit and Monetary Measures, Fiscal Measures and other Physical measures. The main objective of the credit and monetary measures are to check the liquidity and credit flow in the market, RBI is the apex institution to implement these measures. Some of the measures fall under this category like- sale of government securities, change in the bank rates, variance in Statutory Liquidity Ratio(SLR) &Cash Reserve Ratio(CRR), these are controlled by the RBI to check the credit flow during the inflationary pressure.

Under the fiscal measures, the government plans to check the fiscal deficit, change in taxation and may cut the non plan expenditure scheduled by the various ministries. These physical measures includes - control over the price, fixation of prices of agricultural products and maintaining proper public distribution system. The public distribution system is the proper way to check the impact of inflation on the poorer section of the society. As the poorer section of the society would be most affected section due to high rise in prices of essential commodities. These measures would be effective in checking the inflation but not with immediate effect.


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