Tatsat Chronicle Magazine

Inflation is the mother of major political transformations

Inflation is similar to Covid in that if it gets out of hand, it will take over our politics. It brings forth a lot of misery, but it also opens the door to new possibilities

Recent high frequency indicators point to a continuous economic recovery in India, but inflationary pressures have risen, along with a slew of other risks. Despite the fact that the IMF evaluation for India following Article IV Consultations stated that “inflation eased to 5.6 percent in July, reverting to within the RBI’s inflation target of 42 percent,” neither the government nor the people should be complacent. We must proceed with caution.

It should be noted that we are still in the dark because the IMF’s transparency policy allows the organisation to delete market-sensitive information and premature disclosure of the authorities’ policy intentions; however, what has been disclosed has provided sufficient warning about the Indian economy’s problems. For example, the RBI’s inflation target is overly broad, with 50% of the time falling below and 50% of the time rising beyond 4%, whereas real inflation was 5.6 percent. Second, 5.6 percent inflation is harmful for ordinary people at a time when interest rates on even tiny savings, such as fixed deposits in banks, are less than this amount, implying that their accounts will have net negative profits. As a result, it is evident that the Modi government and the RBI must adopt many immediate policy actions to address the precarious situation.

One can disagree with the IMF’s praise for the Modi government’s “quick and substantial economic response,” which includes fiscal support, particularly scaled-up help to disadvantaged groups, monetary policy easing, liquidity provision, and supportive financial sector and regulatory policies. Despite the pandemic, the government has continued to implement fundamental reforms, such as labour reforms and a privatisation plan.” One can disagree with the IMF’s praise for the Modi government’s “quick and substantial economic response,” which includes fiscal support, particularly scaled-up help to disadvantaged groups, monetary policy easing, liquidity provision, and supportive financial sector and regulatory policies.

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