Inflation Control and Price Regulation

Abstract

Inflation has attracted sufficient attention of economists and policy makers. India is pursuing a policy of planned economic development. One of the prime considerations in thestrategy of growth has been to ensure that growth takes place in an environment of price stability, which was considered crucial for both — steady growth and even distribution of the gains of growth. Any increase in prices was likely to affect investment planning and income distribution in the economy. Hence, efforts to contain and or avoid the same were an integral part of the planning process. The transmission of inflationary impulses in the economy is affected by various factors e.g. the differences in sectoral relations in the economy, nature of markets, both of products and services, the extent of linkages between these markets, the pattern of income and asset distribution, levels of concentration of corporate and trade-union’s power and the effectiveness of the intermediation of financial institutions, rate of growth in nominal wages and labour productivity, structure of capital formation and, finally, the rate of development, etc. Thus, the policy response to control inflation has to be varied. A strategy to control inflation will not only have to take into account the operations of all these factors and their relative weightage in the economy, but also have a clear perception of the channels through which inflation is generated.

The author is thankful to Dr. D.K. Bhatia for assistance in the preparation of this paper. The views expressed are those of the author and not of the institution he serves.