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Causes of Inflation in India

The document outlines several major causes of inflation in India: a rising population that outpaces economic production; high economic growth without balanced contributions from key sectors; lack of sufficient agricultural output to meet domestic demand; a weak Indian rupee increasing import costs; and rising costs of labor, land, materials, and borrowing that feed into higher overall production costs. Minor supporting factors include inadequate infrastructure, climate issues, outdated technologies, and shortages of production inputs. Population growth in particular strains economic resources by creating excess demand that businesses address through price increases rather than capacity expansion.

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496 views10 pages

Causes of Inflation in India

The document outlines several major causes of inflation in India: a rising population that outpaces economic production; high economic growth without balanced contributions from key sectors; lack of sufficient agricultural output to meet domestic demand; a weak Indian rupee increasing import costs; and rising costs of labor, land, materials, and borrowing that feed into higher overall production costs. Minor supporting factors include inadequate infrastructure, climate issues, outdated technologies, and shortages of production inputs. Population growth in particular strains economic resources by creating excess demand that businesses address through price increases rather than capacity expansion.

Uploaded by

rohitjagtap
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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CAUSES OF INFLATION IN INDIA

The global economy has been shaking due to a lot

of economic issues indeed these days. In a bid to tackle economic issues, concerned economic agents must make sure they know the precise causes which is a momentous process. The economic inflation has been a centre of atten tion here in the Indian economy. The inflation rates have reached at uncomfortable levels at the moment.

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 minor causes which are very inter-linked to the above major causes which are as under: Weak Infrastructure and transportation, Climatic conditions, Usage of out-dated technology, Lack of supply of factors of production, etc

Population on the rise


Some authentic info is as under to back the

aforementioned statements pertaining to population. 1) In the year 2001, the Indian population was around 1.01billion. 2) In the year 2010-Apr-1, the Indian population was around 1.21billion.

Population is a key factor for many economic reasons

but it is distracting when it is more than sufficient and is uncontrolled. It is increasing every day as birth rates have gone up and death rates have gone down. Since economic producers are unable to meet the demand comfortably, they do not have any options other than increasing the prices of all concerned economic goods and services and that results in economic inflation. Thus, an increasing trend in population would lead to inflation.

High economic growth (EG)


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 the contributions made by the economic sectors in the economy also give a feasible room for inflation. Even if there exists a balance in contribution, that is, 33.3% by each sector, inflation factor would still emerge or rise (if existing) in the economy as no economy on this planet can, strictly speaking, produce all the essential or basic goods and other types of commodities and services in its own economy. That is what has been happening with the Indian economy, too.
India is the 10th largest economy on this planet behind Japan,

Lack of agricultural output


Poor performance in the agricultural and its allied

activities continue to be a big worry for the Indian economy, too. This sector has been a worrying one, because it has been failing to meet the total domestic demand and or failing to generate anticipated GDP contributions. The share of this sector towards the GDP is a meager one, which has been normally under 15% for the past few financial years . why on earth the slowdown is on and on in the agricultural production?

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 a bid to make sure food inflation is well under the control of the concerned governments. Please note: food inflation is an integral part of the general inflation.

Weak INR
Weak Indian Rupee is another cause for inflation here in India.

The national currency plays a vital role in determining the final value of goods and services that have been imported. Thus, at the international market, in case the value of INR slides, the final costs would be higher indeed. In India, around 676 commodities are chosen to calculate inflation . India is not independent entirely, it has to import some essential commodities to make sure the economic and non economic activities run properly in the economy. Thus, the INR is a key thing which also determines the final prices of goods and services imported. The buying capacity of INR is sliding at the foreign market and thus, the final prices have been increasing which mean inflated goods. The INR has fallen more than a 10% this financial year, 2011, against the greenback.

Causes for fall in the INR value are as under:

Investors pull out their investments from the economy to

invest in other economies due to economic and noneconomic reasons. By such economic activity of investors, it leads to a fall in the demand for INR, which ultimately results in the fall of the INRs value, too. Political disturbances in the country also reduce the demand for the INR. Other economic issues such as a high rate of inflation also bring down the value of the INR. Stability and insurance of returns on investments assured in other parts of the global economy. Deliberate depreciation by the central bank, etc.

Cost of output heading to north


Population is increasing all the time; the demand for the land is also

rising. Cost of labor is also stepping up every time and so as are the final prices 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 in

the 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 a 12th time in just a period of 18 months, lately. This is done to tame the economic inflation. At the moment, the RBIs repo rate stands at 8.25%. But the borrowing costs are higher these days here. Banks lending rates are at more than 8% per annum.

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