Q. 14.2( 5 Votes )

Explain the reasons for inflation in India.

Answer :

Inflation is the continuous rise in general price level for the overall goods and services in the economy. Inflation reflects a decrease in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may depress investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include dropping unemployment due to nominal wage rigidity. Inflation is used to increase the economic terminology.


Reasons for inflation


Rise in the money supply of economy


When the money supply increases continuously, then in comparison to the production of goods and services, this will lead to run the currency behind specific items. Then the price level for commodities rises, which will increase the overall demand level than supply level. This will generate the price level in the economy.


Slow growth in industrial and agricultural sector.


Agricultural and industrial growth in our country has been much below what the targets are being set. Over the four decades period, food grains output has augmented, and that is of 3.2 percent per annum. But there are years of crop breakdown due to droughts. In the years of scarcity of food grains not only the prices of food articles improved, but the general price level also rose.


High level of government expenditure.


Government expenditure in India during the recent years has been increasing very fast. The disturbances are, the quantity of non-development expenditure increased rapidly, being about 40 percent of total government expenditure. Non-development expenditure does not generate real goods; it only increases purchasing power and hence leads to inflation.


Rate this question :

How useful is this solution?
We strive to provide quality solutions. Please rate us to serve you better.
Related Videos
Know About SST in NTSE 2020Know About SST in NTSE 2020Know About SST in NTSE 202038 mins
Let's understand Indian EconomyLet's understand Indian EconomyLet's understand Indian Economy33 mins
Learning Important concepts - Sectors of Indian EconomyLearning Important concepts - Sectors of Indian EconomyLearning Important concepts - Sectors of Indian Economy53 mins
Discussion on Challenges AheadDiscussion on Challenges AheadDiscussion on Challenges Ahead41 mins
Champ Quiz | Before INCChamp Quiz | Before INCChamp Quiz | Before INC34 mins
Champ Quiz | Decoding the Economic SectorsChamp Quiz | Decoding the Economic SectorsChamp Quiz | Decoding the Economic Sectors52 mins
Exploring the Indian Political world -IIExploring the Indian Political world -IIExploring the Indian Political world -II56 mins
NCERT | Lifelines of National EconomyNCERT | Lifelines of National EconomyNCERT | Lifelines of National Economy55 mins
Indian Nationalist MovementIndian Nationalist MovementIndian Nationalist Movement29 mins
Indian Superstitions and the Possible Logic Behind ThemIndian Superstitions and the Possible Logic Behind ThemIndian Superstitions and the Possible Logic Behind Them30 mins
Try our Mini CourseMaster Important Topics in 7 DaysLearn from IITians, NITians, Doctors & Academic Experts
Dedicated counsellor for each student
24X7 Doubt Resolution
Daily Report Card
Detailed Performance Evaluation
caricature
view all courses