Inflation in India: a compilation of comments

Last week I posted a rather non-technical take on Inflation in India: Will it ever decrease? The  post triggered many interesting comments

I also received some interesting responses on Linkedin. Here is a compilation of comments from various Linkedin groups.

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Author: Jyoti Kumar, Director- Development (Co-founder) at Bazaar Analysis Pvt. Ltd

Inflation is simple demand supply game. GDP/GNP (nutshell whatever we produce) of country is on one side and supply of currency on the other side. On GDP/GNP side we have multiple problems. Political reasons are on the centre. But, we should also blame our social or cultural part too. In some states politicians are distributing free electricity to farmers at cost of killing manufacturing units then on some other states they are failing to collect the electricity bill in fear of losing popularity and so, poor supply of electricity and no growth of industries.

At moment we have a major amount of assets blocked in half backed real estate projects. In 90s we had really need of real estate but today it is over supply and government never realized this to stop diversion of money in this sector on the right moment.

Our service sector just need 0-6 year experience people. Beyond that they don't have high quality work and their resource become costly for them. So, silently they are dumping people beyond 6 year of experience and our government has yet to realize we are going to face major unemployment issue with people having work experience (unlike till early 90s we had unemployed with no experience)

In the mean time we have killed our conventional engineering and just converted all talent to software engineers.

As a society we need too much security and retail investors have blocked their 2/3rd investment in fixed deposit and stupid insurance linked investments that money almost not available for growth of the industry.

inflation in india: insights and c omments
Photo credit: tico_24 (Flickr)

Our investors’ community never want to take a risk or judge the concept at idea level (whatever they claim to do so). They want to put their penny only on the idea which has started yielding. We don't have investors’ community like who funded Amazon.

Let us come to the other side of the equation. For currency we have copied the fiat currency model from US. We are printing and distributing currency without accountability. In the case of US, whole world is trading crude oil with US$. Virtually, gulf crude production is getting added to GDP/GNP of US. So, printing of extra currency is balancing out. However, we are printing much more than our own production.

Conclusion: Can we control inflation? Yes, we can because we have all resource and talent to do the same. But, we need change in political setup, priority and our own attitude.

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Author:  Harjeet Singh Kalra, Guest faculty, Management studies at Panjab University, Educational Institution, Chandigarh

Keep the exchange rate under control by keeping the economy open to foreign investment which will keep up the inflow of $ and this shall enable us to meet the demand for $ for import of oil and also keep the oil prices from rising in rupee terms. Rising rupee costs of imports(oil) adds to inflation

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Author: Division head of an AMC (not sure about AMCs social media policy , so don't wish to name the author)

Good one and probably reflects the general sentiment...inflation never seems to come down....only observation to add....even good rainfall is not enough to bring down inflation as can be seen amply from the recent sharp rise in onion prices in spite of abundant rainfall .......moreover due to subsidies (again the major culprit) and skewed crop sowing pattern (due to MSPs again determined by govt) the food for which demand is growing like oilseeds, pulses, proteins etc we are not able to increase the supply

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Giovanni Chiampesan suggested (in the post) that I watch a very interesting video by Amercian economist, Milton Friedman on inflation.

Giovanni says, "Inflation is a purely monetary phenomenon caused by an excessive supply of money. Your new head of the Bank of India should be able to curb it since he’s from the Chicago School. See  How to Cure Inflation"

This webpage has simple and illuminative description of inflation:

"Inflation results when the amount of money printed or coined increases faster than the creation of new goods and services. Money is a "token" of the wealth of a nation. If more tokens are created than new wealth, it takes more tokens to buy the same goods."

The same video is also available on youtube

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I would like to thank all readers for sharing their insights. I understand that it is a significant expenditure of your time and effort. Thanks to you I understand about inflation so much better.

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