It is believed that high inflation impedes economicgrowth and affects social justice. Hence maintaining low and stable inflationhas become a primary objective of economic policy. It is important to note thatin recent years there has been a reduction in inflation in a number ofcountries 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 1970sand the 1980s owing to a plethora of factors like supply shocks, changingfiscal and monetary policies etc.
Immediately after India faced its BOP deficit,inflation rose in the first half of the 1990s.Since then reforms targetedtowards developing a broad-based financial market and abundant foreign reserveshas equipped the RBI with greater flexibility in its monetary management.There is no doubt that the RBI has been successful inreducing inflation in the recent period.The highest inflation that India has ever seen in thepast two centuries is 53.
8%, in the famine year of 1943.Those were terribletimes but was incomparable to the hyper inflationary situation that Germanyfaced in the 1920s.India’s inflation pattern has been peculiar in thesense that there were times when the annual rate of inflation was 40%, whilesome years it was negative.
In the last 70 years starting from 1939 inflationrate was below 6% for a period of 34 years, thereafter it became above 6%.For 9 years the inflation rate was above 15% and ifthe tolerable rate of inflation in India is <6% then India seemed to havefared poorly in keeping a check on inflation. Hence many consider inflation tobe a permanent characteristic of the Indian economy right from the start of thesecond world war. This can be attributed to the rise in demand for goods andservices due to population explosion, rising incomes, expansion in liquidity,hoarding of black money which is matched by an insufficient supply because ofprimitive techniques of production, agriculture still being a gamble in themonsoon and bottlenecks in transport.Objective:Against the above backdrop this project brieflypresents the idea and measurement of inflation in India in section 1. Followedby a study of inflation in India over the past five decades in section 2 andfinally, section 3 concludes.