-Pooja Amrutsagar
The global surge in inflation has cast a looming shadow over the cost of living in various nations, and India is no exception.
Several factors contribute to the escalating expenses faced by citizens, with a dual blow of international events and domestic challenges reshaping consumption patterns, particularly among middle and lower-class families.
Inflation's Global Impact:
The high rate of inflation has become a pervasive force globally, influencing economies far and wide. India, grappling with the repercussions of this economic phenomenon, has witnessed a spike in its retail inflation, reaching 6.83% in August 2023, following a 15-month high of 7.44% in July. This surge is compounded by the fact that it builds upon an already elevated base from August 2022.
International Turmoil:
The Russia-Ukraine war has played a significant role in the rising cost of living in India. The conflict has disrupted supply chains, leading to an increase in the cost of raw materials and commodities. This, in turn, has amplified India's payments for essential imports such as oil and gold, contributing to the economic strain.
Pandemic Fallout and Supply Chain Disruption:
The aftermath of the COVID-19 pandemic continues to reverberate through the global economy. Supply chain disruptions have impeded the smooth flow of goods and services, further exacerbating the challenges faced by nations. India, caught in this dual crisis, grapples with increased payments for essential commodities, intensifying the economic burden on its citizens.
RBI's Response and Economic Projections:
The Reserve Bank of India (RBI), in response to these challenges, revised the country's retail inflation projections for 2023-24. The projections were revised upwards to 5.4%, compared to the 5.1% estimated in the previous monetary policy meeting in June. RBI Governor Shaktikanta Das emphasized the need to align inflation with the target of 4.0%, recognizing the importance of stabilizing the economy.
Impacts on Society:
The ramifications of the rising cost of living are far-reaching. Reduced disposable income, increased poverty levels, and even deaths due to starvation are among the social consequences. Additionally, economic uncertainty discourages people from investing in financial assets, creating a ripple effect across various sectors.
Monetary Policy Dilemma:
As inflation breaches the upper threshold of 6%, the RBI faces a delicate dilemma. While raising interest rates is a conventional tool to curb inflation, it risks suppressing demand in the economy, potentially hindering economic growth. Striking the right balance becomes crucial for the central bank.
Inflation's Economic Paradox:
In exploring whether inflation is good or bad for the economy, it becomes evident that at moderate levels, inflation is a sign of a healthy economy. However, when inflation rises rapidly, it can lead to a decrease in purchasing power, higher interest rates, and slower economic growth, unleashing a cascade of negative economic effects.
In short, the rising cost of living in India is a complex interplay of global and domestic factors. As citizens grapple with reduced purchasing power and increased economic uncertainties, policymakers face the challenge of navigating through a delicate economic landscape to ensure stability and sustained growth.
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