You can put your views, thanks..
How does one control inflation?
Submitted by Arthakranti on Tue, 12/07/2010 - 09:30
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How does one control inflation?Submitted by Arthakranti on Tue, 12/07/2010 - 09:30 You can put your views, thanks.. |
Inflation control in TT
Respected Shri Anil Bokil has said in a personal email on this topic ...
"... Inflation takes place due to increase in supply of money, particularly M-1, without proportionate increase in supply of goods and services OR when there is shortfall in supply of goods and services, the money supply is NOT reduced proportionately. Under prevailing conditions, by adopting deficit budget policy, Govt. is putting in excessive currency in the market ( to meet the budget committements ) which is one of the major causes of inflation. Once Govt. has adequate revenue collection through Transaction Tax, it will not have to resort to deficit financing. Thereby, it will not be putting in excessive currency in the market increasing money supply. Once the money supply is regulated in line with supply of goods/services, inflation will be under control.
In place of increase in currency supply, when there is increase in credit supply, the STANDARD OF LIVING INCREASES, (instead of INCREASE IN COST OF LIVING); because increased credit supply stimulates production phenomina, and consequential increase in goods and services matches the increased credit supply ..."
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I have some doubts in the above response.
In the specific circumstances prevailing in India currently, inflation is due to demand pull and supply side shortages. Simultaneously the Govt has increased 'social spending' by tens of thousands of Crores. The sixty pay commission, National Employment Scheme and the 'loan write off' have also added tens of thousands of Crores in the hands of many citizens. These are no doubt needed since there has been decades of delay in important social spending indices. The sum total is inflation. Since economy is developing rapidly eventually there should be a convergence of new products+services to cover this increased or wildly fluctuating liquidity. The Govt has little to do except mouth platitudes and do some micro management thru CRR, etc.
I am unable to understand the logic of Anil in this scenario. TT will make available funds for Govt. spending, same as the current multi level taxation at present. Since India is having serious social issues, the need for 'deficit spending' is paramount if these social issues have to be addressed. In USA too there has been trillions of dollars of liquidity 'created' by the Govt. yet the inflation is minor compared to India. This is because there is no pressure or new demands on products and services ... there are plenty available.
If in India, increased social spending causes the Govt to have a higher TT (to avoid deficit), the same inflation will occur due to inherent 'supply side constraints'. With the current lack of infrastructure (of various kinds) this issue does not get addressed by TT. Where ever there is rapid growth in economy and increase in the aspirational class, inflation is bound to follow. This is my opinion ... I invite a structured discussion on this.
Inflation Control
I am sure like me, all of us understand "money" is men-made "media" of exchange. In modern norms the man made money is being added on & on even after its purpose is served.. that causes the inflation.
From the simple analysis of the system of nature, we know that every thing has self life, it expires & re born like seed & plant, like blood & enzymes that makes the body live etc.
The simple solution to control inflation is to print "expiry date" on man-made money...
This could solve not in only Bharat but to all the countries of monitory inflation.
Bhaarat can lead the table by introducing "MUDRA" to replace rupee with the following exchange weight-age constant for at least 25 years & repeated/revalued if required for next 25 years:
10 Mudra = 1 gram of gold = 50 grams of silvar = 10 kgs. of grain = 8 Kgs of fruit + 4 Kgs. of Veg. = 4 kgs of green spice = 2 Kgs. of dry spice = 2 kgs of cloth = 10 working hours
The above suggestions can make Bhaarat rich of available human resource instantly & help create the best, cutting down on competition & enhancing the skill to creating the best for the humankind.
Kindly respond to the ideas..
Regards,
S.P. Mehta
+1 312 608 9836
mehtasp25@gmail.com
Inflation control
Dear Prafulji,
As has emerged from the discussion so far, inflation is primarily caused by supply side constraints OR demand pull OR the govt. press working overtime to bridge deficit gaps. All social sector (or other) spending, pay commissions, handouts etc merely result in a temporary increase in purchasing power and eventually add to demand pull.
It is obvious that creating infrastructure worth USD 500 Billion (INR 24 Trillion)- required in India according to certain estimates - is not going to happen in a day, even if we have the money in our pocket today, which we dont!
This process will take a couple of decades and initially the dividends may flow in a sporadic, unpredictable manner.
After implementation of our proposal, funding will not remain a concern - and we have the math to prove it.
Yes, infusion of massive amounts of money into the mainstream economy can without doubt create and drive inflation and that is a genuine concern. We have discussed this with several senior economists as well.
However, tools like SLR, CRR will become truly meaningful and effective post-implementation and additional methods like long term Government Infrastructure Bonds etc can be harnessed to reduce and control the threat of excessive liquidity.
The real results as said earlier will show up in 10-20 yrs. But this period will actually see a sustained phase of high demand for capital goods, infrastructure development etc. which will generate employment and vitalise economic systems not just in India, but worldwide.
The AK proposal is a structured and technical correction for flawed existing systems of economic governance. It will certainly rectify the root causes of most of our problems and set off the process of healing secondary, tertiary and fourth level effects (such as inflation). However, it is NOT a magic pill or a miracle cure (lizard oil) that can cure each and every problem at one shot, on day one!
e.g. A patient goes to a Doctor for a serious problem, say TB, or Cancer. The Doctor suggests a course of treatment and medication, and is reasonably certain that the patient will be cured.
Now is it fair if the patient demands a guarantee that after the treatment, he will have a fine muscled body and will win the weightlifting championships, and gets married and lives a long life of a 100 years? All this is theoretically possible, but the main problem needs to be cured first.The Doctor and the best medicine on earth can only hope to cure the root cause, the basic problems. What the patient does with the cured body thereafter is a different matter altogether...
I hope this helps - but it is a complex subject and would be better to meet and discuss in person.
Rgds
Naren