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Growth and inflation in India

                                     Growth and inflation



The relationship between inflation and growth remains a controversial one in each theory and
empirical findings. Originating within the Latin American context within the 1950s, the problem has generated an enduring discussion between structuralists and monetarists. The structuralists believe that inflation is essential for economic process, whereas the monetarists see inflation as harmful to economic progress. There are 2 aspects to the present debate: (a) the character of the link if one exists and (b) the direction of causality. Friedman (1973: 41) compactly summarized the inconclusive nature of the relationship between inflation and economic process as follows: ―historically, all attainable combinations have occurred: inflation with and while not development, no inflation with and while not development.

The growth rate of GDP in India exaggerated from 3.5 during the 1970s to 5 during the 1980s. This increase in growth has been attributed to both demand and supply-side factors. However it's been
suggested that Keynesian expansion‘, or the rise in combination demand because of higher government spending and bigger financial  deficits, was primarily liable for pushing up growth rates (Joshi and Little 1994). Within the early 1980s public investment was growing speedily, however within the second half of the decade it slowed down and government consumption expenditure grew at a way quicker pace. The revenue deficit grew, indicating that government consumption was being supported by borrowing, which entailed interest and reimbursement commitments.

The success of expansionary financial  policies in raising output growth, a minimum of within the short run, can partially be attributed to the under-utilization of productive capability within the preceding years. By the end of the 1980s, once output was on top of trend levels, economic policy continued  to be expansionary creating excess demand within the system (Joshi and little 1994).

The reform of the money sector consists primarily of a discount within the statutory liquidity ratio and a rationalization of subsidized credit to priority sectors, relaxation of interest controls and
restrictions on firms‘ access to capital markets, and a lot of autonomy for public sector banks. The 
6 major reform within the case of public sector enterprises consisted of eliminating privileges like
protection from external and domestic competition and discriminatory access to budget and bank
resources. Although the condition concerning an efficient exit policy‘ for the closure or restructuring
of money-losing corporations within the non-public and public sector has not been consummated, the reforms created have largely been in line with the program‘s objectives.

The “Great Moderation”:

One of the shaping characteristics of world economic developments over the last 3 decades has been termed the ―Great Moderation― –the sustained decline within the volatility of output and inflation. This development has been as a result of the structural changes that several economies have undergone. Some have attributed these changes to the implementation of higher policy choices and
others to easily good luck. Professor Kenneth Rogoff of Harvard University has argued on several 
7 occasions that improved aggressiveness as a results of increased  globalization in addition to higher
policies has had a serious positive impact on inflationary trends in several countries. The declining
trend in inflation since 1990 is clearly evident in India and South Africa. Inflation in India has
declined steady from an average of 10.3 to choose between 1990–1994, to 8.9 that in 1995–1999 and to 4.3 during this decade. equally in South Africa, inflation has declined from a median of 12.5 %, to
7.3 attempt to to 5.1 % over a similar time periods. The economic process performance of each countries has also been quite spectacular. Since 1990, India has experienced average growth rates of around 6 % every year

Similarly, inflation may take place due to supply side and demand side factors. Apart from these, the monetary factors and the international factors also may lead to inflation. Based on the circumstances,
the government has to take the timely measures to control the inflation in order to maintain
economic stability in the economy











Growth and inflation in India Reviewed by Nancy Tamil on 3:00:00 PM Rating: 5

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