What is inflation: inflation is a general rise in price of goods and services due to the supply side or demand side variable changes .Although inflation is not always considered bad for any economy as a moderate inflation if good for any economic system to increase its GDP but beyond a certain level inflation becomes a challenge for an economic system.
For this purpose RBI has enacted the monetary policy committee which keeps on measuring inflation by inflation Targeting up to a certain level keeping in mind the objective of growth.
Various measures of controlling inflation in India
1)monetary policy committee : this is a body enacted in 2016 to keep the inflation in mind and make the inflation set to a certain level for the healthy growth of economy.
2)supply side policy by increasing the long term supply side measures so that demand may get fulfilled up to a level.
3)fiscal policy :the major task of fiscal policy is to maintain the demand and supply in economy and keep macro economic tasks so that economy get growth sustainably.
4) control of wages : it will help to reduce the inflationary pressures and also protect us from the crisis like 1930s.
What are the tools available in controlling the inflation
- OPEN MARKET OPERATIONS (omo) :this is the tool available to RBI by which RBI keeps on selling and purchasing the government securities to control the inflation.
- RBI issues govt. securities to commercial banks and private businesses to make the inflation in control
- REPO RATE AND REVERSE REPO RATE these are used to control inflation and the demand and supply of goods and services y increasing or decreasing the money supply in the market
- CASH RESERVE RATIO :the commercial banks needs to keep a large amount of cash with the central bank to make the stability and also to deal bank run like situations.
Although inflation targeting not only one task of RBI ,it has to do more than inflation targeting but this is what has the power to impact the masses on huge level for this purpose we enacted the MPC and we also need to keep in mind inflation expectations both of consumers and financial markets .