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There are two causes or factors which are responsible for inflationary pressure in India: (1) Demand pull factors (2) Cost push factors. These two factors may operate independently or simultaneously. The factors arising out of demand are called Demand pull factors and those relating to supply are called Cost push factors. In India, both of these have inflationary effects. The Demand Pull factors may include the following:
- High Rate of Investment: The high investments made by the government and private industrialists have resulted in a continuous increase in the price of capital goods and services thus resulting in inflation.
- Expenditure of the Government: Tremendous increase in revenue expenditure has lead to an increase in demand for goods but the supply has not increased proportionately, thereby a rise in prices occurs.
- Growth of Population: The rapid increase in population is also one of the major factors for the rise in the price level. Gradually the demand increases and the supply does not increase hence a rise in the price level.
- Hoarding and Black Money: Black money means unaccounted money. It is created through tax-evasion and is responsible for price rise. Black money generates hoarding of goods in the economy.
Fluctuations in Output and Supply: The wide fluctuations in the production of food grains have been responsible for price rise. The power breakdowns, strikes and lockouts result in lower production of goods.
Public Distribution System: This results in an uneven distribution of goods and services thus leading to scarcity of goods.
Enhanced Taxation: Every year the government imposes fresh commodity taxes in the budget. This directly affects the price of the goods.
Thus, the Government should take Anti-Inflationary measures to curb the problem of inflation. The government should adopt monetary policy control measures to check inflation. It has also introduced rationing system to ensure proper supply of goods. The rate of increase in money supply should be in proportion to rising in national income. Other anti-inflationary measures may include the reduction in public expenditure, increasing taxes, reduction in deficit financing, control on population growth and many others.
Article by Anisha Dutta
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