Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
prelims Test Series 2019
बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. Concerns of inflation Gain: Discuss how recently released Wholesale Price Index and Consumer Price Index are cause to worry for policy makers.
Aug 20, 2016 Related to : GS Paper-3

Ans :

Introduction-

Recently government has released Wholesale Price Index (WPI) and Consumer Price Index (CPI) for the month of July. Both of these indexes have shown considerable in inflation, which were became cause to worry for policy makers.

Highlights of both Indexes-

  • In the month of July, the annual gain in wholesale prices hit a 23-month high of 3.55%.
  • Retail inflation quickened past the Centre’s new Monetary Policy Framework’s upper limit for tolerance to 6.07%.
  • Cost of foods is a key component in both indices, which was main reason for high inflation.
  • Inflation in the food category of the CPI accelerated to 8%, and in the case of the WPI surged to a 31-month high of 11.8%.

Analysis-

  • Many economists and the Reserve Bank of India have pointed to the forecast of normal rainfall this year, and in effect in the improvement in sowing on the back of the steady progress of the monsoon, as clear indicators that the outlook for supply can only improve going forward, hence it will helps to contain inflation. But these developments also attached with risks.
  • Good monsoon will have impact on the predominantly agrarian rural economy is bound to result in an uptick in rural wages, and by extension demand-side consumption pressures.
  • As per January 2016 IMF working paper on ‘Understanding India’s Food Inflation: the Role of Demand and Supply Factors’, rising real rural incomes have had the largest impact on food inflation.
  • It is particularly so as the large weight on food in household expenditure has meant that robust real income growth has tended to translate into substantial demand-side pressures that far outpace the supply-side gains.
  • This stickiness of food costs can undermine the steady gains in the fight against price gains, hence there should be effective mechanism to contain inflation, because inflation ultimately ends up being a tax on the poor.

Suggestions-

  • In a current gloomy global demand, to maintain the current growth impetus, it will be essential that domestic consumption continues to be a key engine of economic momentum.
  • The Government has to maintain fiscal discipline if it is to ensure that increased expenditure from its side doesn’t end up fanning inflation expectations at a time when monetary authorities are already grappling with the challenge of containing the food costs-led price gains.
  • To maintain 4% retail inflation as backed by Prime Minister, there must be political will to keep price gains under check.

Conclusion-

Recently released WPI and CPI are a cause to worry for policy makers, because inflation ultimately hits poor. Thought good monsoon will helps to contain it but policy makers need to be more effective in managing the inflation.


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.