It is believed that high inflation impedes economic
growth and affects social justice. Hence maintaining low and stable inflation
has become a primary objective of economic policy. It is important to note that
in recent years there has been a reduction in inflation in a number of
countries despite being at varying stages of development.
Experience of inflation in India has been a mixed bag.
India witnessed an increase in inflation in the 1970s
and the 1980s owing to a plethora of factors like supply shocks, changing
fiscal and monetary policies etc. Immediately after India faced its BOP deficit,
inflation rose in the first half of the 1990s.Since then reforms targeted
towards developing a broad-based financial market and abundant foreign reserves
has equipped the RBI with greater flexibility in its monetary management.
There is no doubt that the RBI has been successful in
reducing inflation in the recent period.
The highest inflation that India has ever seen in the
past two centuries is 53.8%, in the famine year of 1943.Those were terrible
times but was incomparable to the hyper inflationary situation that Germany
faced in the 1920s.
India’s inflation pattern has been peculiar in the
sense that there were times when the annual rate of inflation was 40%, while
some years it was negative. In the last 70 years starting from 1939 inflation
rate was below 6% for a period of 34 years, thereafter it became above 6%.
For 9 years the inflation rate was above 15% and if
the tolerable rate of inflation in India is <6% then India seemed to have fared poorly in keeping a check on inflation. Hence many consider inflation to be a permanent characteristic of the Indian economy right from the start of the second world war. This can be attributed to the rise in demand for goods and services due to population explosion, rising incomes, expansion in liquidity, hoarding of black money which is matched by an insufficient supply because of primitive techniques of production, agriculture still being a gamble in the monsoon and bottlenecks in transport. Objective: Against the above backdrop this project briefly presents the idea and measurement of inflation in India in section 1. Followed by a study of inflation in India over the past five decades in section 2 and finally, section 3 concludes.