Causes of Inflation in India

7/29/2019 Causes of Inflation in India

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CAUSES OF INFLATION IN INDIA

The global economy has been shaking due to a lotof economic issues indeed these days. In a bid totackle economic issues, concerned economic agentsmust make sure they know the precise causes which isa momentous process.

The economic inflation has been a centre of atten

tion here in the Indian economy. The inflation rateshave reached at uncomfortable levels at the moment.


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The following are the major & real causes of

economic inflation in India Population on the rise; High economic growth; Lack of agricultural output;

Weak INR; & Cost of output heading to north.

Well, the above list has been backed up by some minorcauses which are very inter-linked to the above majorcauses which are as under:

Weak Infrastructure and transportation, Climatic conditions, Usage of out-dated technology, Lack of supply of factors of production, etc


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Population on the rise

Some authentic info is as under to back theaforementioned statements pertaining to population.

1) In the year 2001, the Indian population was around1.01billion.

2) In the year 2010-Apr-1, the Indianpopulation was around 1.21billion.


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Population is a key factor for many economic reasonsbut it is distracting when it is more than sufficient andis uncontrolled. It is increasing every day as birth rateshave gone up and death rates have gone down. Sinceeconomic producers are unable to meet the demandcomfortably, they do not have any options other thanincreasing the prices of all concerned economic goodsand services and that results in economic inflation.Thus, an increasing trend in populationwould leadto inflation.


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High economic growth (EG)

India is the 10th largest economy on this planet behind Japan,Germany, Brazil, China and the USA, etc. The economic growth has

been heading to north each and every financial year in India,normally, projecting more than a 6% a year. Economic growth is

what every productive person wishes for. But an imbalance in thecontributions made by the economic sectors in the economyalso give a feasible room for inflation. Even if there exists a

balance in contribution, that is, 33.3% by each sector, inflationfactor would still emerge or rise (if existing) in the economy as no

economy on this planet can, strictly speaking, produce all theessential or basic goods and other types of commodities and

services in its own economy. That is what has been happening withthe Indian economy, too.


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Lack of agricultural output

Poor performance in the agricultural and its alliedactivities continue to be a big worry for the Indianeconomy, too. This sector has been a worrying one,because it has been failing to meet the total domesticdemand and or failing to generate anticipated GDPcontributions. The share of this sector towards the GDPis a meager one, which has been normally under 15% forthe past few financial years .

why on earth the slowdown is on and on in theagricultural production?


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The following are the scientific reasons for that:

1) Climate change.

2) Usage of old tech and methods are on or underway.

3) Lack of reliance on new tech.4) Lack economic planning and executions made by farmers

and other concerned in the agriculture field, too.

5) Lack of finance, etc.

There is a need to bolster the agricultural productivity in abid to make sure food inflation is well under the controlof the concerned governments. Please note: foodinflation is an integral part of the general inflation.


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Weak INR

Weak Indian Rupee is another cause for inflation here in India.The national currency plays a vital role in determining the finalvalue of goods and services that have been imported. Thus, at the

international market, in case the value of INR slides, the finalcosts would be higher indeed. In India, around 676 commoditiesare chosen to calculate inflation . India is not independententirely, it has to import some essential commodities to makesure the economic and non economic activities run properly in

the economy. Thus, the INR is a key thing which also determinesthe final prices of goods and services imported. The buyingcapacity of INR is sliding at the foreign market and thus, thefinal prices have been increasing which mean inflated goods.The INR has fallen more than a 10% this financial year, 2011,

against the greenback.


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Causes for fall in the INR value are as under:

Investors pull out their investments from the economy toinvest in other economies due to economic and non-economic reasons. By such economic activity of investors,

it leads to a fall in the demand for INR, which ultimatelyresults in the fall of the INRs value, too.

Political disturbances in the countryalso reduce the demand for the INR.

Other economic issues such as a high rate of inflation alsobring down the value of the INR.

Stability and insurance of returns on investments assuredin other parts of the global economy.

Deliberate depreciation by the central bank, etc.


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Cost of output heading to north

Population is increasing all the time; the demand for the land is alsorising.

Cost of labor is also stepping up every time and so as are the finalprices of commodities and services, related. This is the impact of higher

transfer earnings. The rise in profit margins makes final costs more.

Increase in the cost of marketing has risen due to a stiff competition inthe economy these days.

Increase in the borrowing costs also contribute to a rise in the

final prices. In India, the RBI has increased its key rates for a12th time in just a period of 18 months, lately. This is done to tamethe economic inflation. At the moment, the RBIs repo ratestands at 8.25%. But the borrowing costs are higher these dayshere. Banks lending rates are at more than 8% per annum.

Causes of Inflation in India

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