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