Top 5 Steps by the Government to Control Inflation?

A group of robbers invaded a country's minting facility. There were numerous people inside the unit. The group kept everyone prisoner. They stayed there for several days and began printing money. They first printed thousands of cash notes, then millions, and finally billions. Finally, they settled on €2.4 billion. And escaped.

 

We cannot reduce the explosive repercussions of inflation. High inflation has the potential to destabilize governments, bankrupt nations, and stifle economic growth. It discourages saving and lowers overall productivity in the country. In its most sinister form, inflation can erode people's purchasing power, which means that their pensions and savings can now buy less than they used to.
 

Introduction

 

Inflation has been a major concern for many people in recent years. But how long will it last? In June 2022, inflation in the United States rose to 9.1 percent, its highest level since February 1982. Inflation has now slowed in the United States, Europe, Japan, and the United Kingdom, particularly in the latter few months of 2023. 

 

Statistical agencies measure inflation first by calculating the current value of a "basket" of various goods and services consumed by households, known as a price index. To calculate the rate of inflation over time, statisticians compare the index's value from one period to another. Comparing one month to another yields a monthly rate of inflation, whereas comparing years yields an annual rate of inflation.

 

Even while worldwide inflation is higher than it was prior to the COVID-19 epidemic, when it was approximately 2%, it is returning to historical values. In fact, by late 2024, investors expected long-term inflation to settle at a moderate 2.5 percent. That is a far cry from fears that long-term inflation would follow the patterns of the 1970s and early 1980s, when inflation topped 10%.

 

Inflation is a measure of how quickly prices for goods and services rise, and it can be influenced by a variety of circumstances. Inflation may arise as a result of increased production costs for raw materials or labor. Higher demand might also result in inflation. Certain fiscal and monetary measures, such as tax cuts or lower interest rates, have the ability to boost growth.

 

Inflation is monitored by central banks in developed economies, such as the Federal Reserve in the United States. If inflation rises too quickly, prices for basic goods may become prohibitively expensive. Inflation also reduces consumer purchasing power, devalued currencies, and can impair the ability to save. 

 

Also Read | Understanding Inflation and Phillips Curve

 

Causes of Inflation in India

 

As of March 2024, India's current inflation rate is 6.66%. However, over the last 61 years, the inflation rate for consumer prices in India has ranged between -7.6% and 28.6%. From 2012 to 2024, India's inflation rate averaged 6.04%, with a peak of 12.17% in November 2013 and a low of 1.54% in June 2017.

 

Inflation is defined as a sustained increase in the overall price level of goods and services in an economy over time. In India, inflation has been a persistent concern for decades, and policymakers continue to face significant challenges. A number of factors can contribute to inflation, including changes in the money supply, production costs, consumer demand, and foreign factors like global oil prices. In this setting, understanding the underlying causes of inflation in India is critical for developing effective anti-inflationary policies.

 

India's inflation rate has been rising. The wholesale price-based inflation spiked to a four-month high of 14.55 per cent in March. Retail inflation reached a 17-month high of 6.95 percent during the same period, according to official data.

 

The Wholesale Price Index (WPI) tracks inflation at the producer level. The Consumer Price Index (CPI) tracks retail inflation, which assesses price increases from the standpoint of a consumer.

 

Inflation is defined as an increase in the economy's prices. Inflation refers to an increase in the cost of living as the prices of goods and services rise. The rate of inflation is the annual percentage change in the general price level. Inflation is sometimes known as a "necessary evil" since no one enjoys it, but it is required for economic growth. However, excessive inflation can cause significant challenges for policymakers.

 

Steps Taken by Government to Reduce Inflation

 

The finance ministry announced on Thursday that steps taken by the RBI and the government will shorten the length of high inflation caused by global causes.

 

Retail inflation has been rising beyond the Reserve Bank's upper tolerance range of 6% for the past three months. Listed below are some of the steps taken by government to reduce the rise of inflation india

 

1. Consistent Advisory 

 

Advisories are issued to state governments as needed to take strict action against.  hoarding and black marketing, as well as to effectively enforce the Essential Commodities Act, 1955, and the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980, for commodities in short supply.

 

2. Regular Review Meetings 

 

Regular reviews of the pricing and availability situation are held at the highest levels, including the Committee of Secretaries, the Inter Ministerial Committee, the pricing Stabilization Fund Management Committee, and various departmental review meetings.

 

3. Stock Enhancement 

 

The government approved increasing the buffer stock of pulses from 1.5 lakh MT to 20 lakh MT to allow for effective market intervention to moderate retail prices. As a result, a dynamic buffer stock of pulses with up to 20 lakh tones has been developed.

 

4. Taxation

 

Tax policy can be used to encourage or discourage household spending and private investment by raising or cutting personal income tax, corporation tax, or indirect tax (such as GST). In the event of rising inflation, the government may increase personal or company taxes in order to decrease consumer spending and private investment. Increased taxation reduces people's disposable income. This would reduce aggregate demand and help to curb increasing inflation.

 

5. Fiscal measures

 

Fiscal policy is the process by which a country's government manages the flow of tax income and public spending in order to steer the economy.

 

For example, during a slowdown, the government may opt to increase spending on infrastructure projects and other programmes to boost the economy. To generate money, the government may increase taxes on the wealthy.

 

Summing Up

 

Inflation, when managed properly, is beneficial to the country's growth. However, if it is not controlled, it will spiral, causing hyperinflation and plunging the economy into a vicious cycle. As a result, both the central bank and the government develop appropriate steps to keep it under control.