the rise in price of petrol is still not sufficient to buffer up against the ever increasing oil prices... we have to take this hard hit continuously as the govt. continues to buffer the economy without a proper framework...
agriculture - which is touted as the backbone of india has now given way to IT (that too mostly in the services sector)... as a result forex reserves improved, share markets rose and coupled with some good takeovers over the last one year, the anticipation of indian cos. has risen up... india shone but only on one side... the other side of the coin could not make such a quantum leap...
unfortunately, the rising costs are shared by all while the boom is shared by a select few... this is the current problem...
view 1:
the underlying logic of raising the interest rate by the RBI is that the banks would thenpass on this to their customers who take loans... theoritically, then because of the high interest rates (supply-demand is assumed to be elastic), the amount of loans would come down, and hence less cash flow in the market - which would again mean that the lesser money the consumer has - the lesser his demand - the lesser his demand (again elasticity!), lower the price...
RE:inflation...
by Seshadri on Jun 14, 2008 03:45 PM Permalink
view 2:
the alternative - rising of interest rates was probably a stop gap option for RBI so as not to lose the effective current margins (read interest rates)... and hence i presume that the control is not on inflation as a whole, rather on the bank's anticipated interest gains...
problems erupt when the demand-supply theory is not strictly adhered to (which happens 99.9% of the time!!!)...
the banks probably would raise 2% above the RBI rate...
while arguing that this would control inflation, one has to consider the nature of the inflation, this is not an artificial hike rather a real and permanent hike caused by high fuel prices (mainly)... if IOC were allowed to sell petrol at its actual price (the price devoid of subsidy), probably the inflation figure would hit a silver jubilee!!!
so, essentially, the solution would lie in harmonised growth, which would ensure that all sectors grow at a uniform rate without too much pressure on the pocket...!!!
