Inflation is not coming under control in many countries due to continuous increase in interest rate.

Since the Corona epidemic, inflation has increased very rapidly all over the world. In India, consumer price index based inflation was above 7 percent and wholesale price index based inflation was above 13 percent. In many developed countries, inflation based on the Consumer Price Index reached more than 10 percent, which is the highest rate of inflation in the last 50 years. Inflation refers to the increase in the prices of goods and the decrease in the purchasing power of money.

Inflation especially affects the poor and lower strata of the society and the middle class people a lot. Because, the income of this class remains in a certain limit and a large part of it is spent on their food and drink. If the inflation continues to be high, then the food habits of this class also get adversely affected. Therefore, it is the prime duty of the government of the country to keep inflation under control. Inflation also slows down the country’s economic growth in the long run. For this reason, the main goal of monetary policy in many countries has been based on the inflation target.

In order to control inflation, central banks are continuously announcing increase in interest rates. The increase in interest rates is being done with the aim of discouraging citizens from taking loans from banks and encouraging them to deposit their savings in banks. This reduces the demand for products in the market by reducing the spending capacity of the citizens and the availability of these products increases in the market, in comparison to the demand, thereby reducing the prices of these products, ultimately curbing inflation.

Inflation is not coming under control in many economies due to continuous increase in interest rate, but many other types of other economic problems are definitely emerging. For example, decrease in the business of companies, decrease in profitability, retrenchment of employees, decrease in collection of taxes and increase in unemployment, decrease in the growth rate of the country, etc. For this reason, it should now be thought whether increasing the interest rates is the right way to control inflation in these circumstances. Such measures have been taken in the past by developed economies that have decided to pursue their economic development according to the capitalist model. Whereas, now these measures are proving to be both. Amidst these circumstances, should not these problems be solved by increasing the supply of the products instead of reducing the demand of the products. In particular, the problem of inflation arises because the supply of products in the system falls short of the demand. Due to the war between Russia and Ukraine during and after the Corona epidemic, the supply of many products in many countries has been disrupted. Due to which inflation has spread in these countries.

In the history of very old times of India, there is no description of the word inflation. Because goods were produced in abundance through cottage industries in the rural areas and the supply of goods was always ensured, hence the imbalance in demand and supply was never allowed to arise.

Contrary to the capitalist model, Indian economic thinking has thought about the economy of abundance, that is, produce more and more – “Shatahasta Samahar, Sahastrahasta Sankir” (collect with a hundred hands and distribute with a thousand hands) – this is also mentioned in our scriptures. It has been told. In the economy of abundance, more and more citizens get the consumables easily at a reasonable price, due to which the market prices of the products keep decreasing instead of increasing. Indian economic thinking prefers an economy run by keeping the benefit of humanity at the center instead of a personal profit-oriented economy. Today, if the goal of “Sarve Bhavantu Sukhinah” is to be fulfilled, then the economy of abundance described in the Indian Vedas is more correct, and not the capitalist economy that deliberately creates famine.

In recent times, especially due to increased availability of food items, there has been success in curbing inflation in India and in the month of December 2022, the inflation based on Consumer Price Index has come down to the lowest level of 5.72 percent in the last 12 months. And the inflation rate in food items has been 4.19 percent. Actually the farmer of India has now become aware and has started producing using new technology according to the demand of the materials. The production of commodities is being increased as per the requirement, due to which the supply of those commodities is increasing in the market and thus inflation is being curbed. Although it has again increased to the level of 6.52 percent in January 2023, but the rate of inflation based on the Wholesale Price Index has come down to the level of 4.73 percent. Since other developed countries are continuously increasing the interest rates, the currency of these countries is getting stronger and the Indian rupee is getting devalued against the US dollar. Due to this imports are becoming costlier and imported inflation in India is increasing.

Since the inflation rate in India has now come under control to a great extent, in addition to the imported inflation rate, it is now expected by the Reserve Bank of India that the Wholesale Price Index based inflation rate will be negative in the months of May and June 2023. While the rate of inflation based on the Retail Price Index is likely to come down to 4.5 percent in April 2023. Due to the inflation rate remaining under control in India, there is a possibility of a growth rate of 7.8 percent in the GDP in the first quarter of the financial year 2023-24. That is, controlling the rate of inflation is also proving helpful in furthering the growth rate of the country.

But, like other countries of the world, with a view to curb inflation, interest rates are being continuously increased by the Reserve Bank of India in India as well. However, if inflation is increasing due to the increase in the prices of food items, then it cannot be controlled by increasing the interest rates, because no matter how expensive the food items become, but the consumption of essential items can be done at any cost. It has to be done. Yes, since other countries of the world are continuously increasing the interest rates and due to this there is pressure on the Indian rupee in the international market due to which the goods imported in India are becoming costlier, hence the imported currency inflation is increasing in India. To control this, the Reserve Bank of India is forced to announce an increase in the repo rate.

But, interest rates in India have now come to such a level that if they are increased further, it will adversely affect the growth rate of India’s GDP. To some extent, this is visible from the rate of growth in GDP in the third quarter of the financial year 2023. In the third quarter of the financial year 2022-23, October-December 2022, a growth of 4.4 percent has been registered in the country’s GDP. While in the first quarter of the financial year 2022-23, April-June 2022, and in the second quarter, July-September 2022, an increase of 13.2 percent and 6.3 percent was recorded respectively. The increase in interest rates may not be affecting the rich class and upper middle class, but it is affecting the lower middle class and poor class a lot because the interest paid on the loans taken by the citizens of this class is very high. The amount of monthly installment increases a lot due to which the real income of this class is getting very low. Therefore, the increase in interest rates to control inflation is now adversely affecting the economies of various countries. It can be brought under control only by managing the supply side on the basis of Indian economic thinking.

– Prahlad Sabnani

retired deputy general manager

state Bank of India