The U.S. economy was in a state of turmoil in the 1930s, when government spending increased as the flow of water was replenished by drying out wells and re-activating the flow of water. “It simply came to our notice then. As a result, between 1933 and 1937, the country’s total government spending increased by about 50 percent. After filling the three-year-old tube well (‘Pumping Priming’), he saw an increase of about 50 per cent in the country’s national income and national consumer expenditure. Nonetheless, there was still a lot of unemployment, which worried government policy makers and the intellectual father of such a policy, the great British economist John Menard Kennes.
One of the reasons for the “Pump Priming 4” failure was one of the reasons why the United States Central Bank (the equivalent institution of our Reserve Bank of America) was inflationary. In the midst of a downward spiral, when all prices are down, such fears of a “Federal Reserve Board” in the face of inflation are exacerbated by the fact that the bank has since entertained the observers. The Reserve Bank adopted the necessary policies.
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The confusion that the Indian economy, which has been severely injured by China’s corona, is now facing the same dilemma seen in the United States at the time as it seems, isn’t history repeating itself here? It is well-known to our policy makers that the demand for our economy has been greatly weakened by the side-by-side coup d’état, and that our policy makers need a consistent and large-scale ‘pumping priming’ from the government to restore it. The supply chain, which was already active in the economy due to the corona, has been largely devastated. If the supply does not keep pace with the demand after the surge in demand due to large government spending, there will be an increase in inflation as a result, i.e. there is a risk that the inflation situation will worsen, ”he said. Embarrassed
One of the main reasons why they are in such a predicament is the “Inflation Targeting Policy”, which has been in force in India for the past five years. The agreement between the central government and the Reserve Bank of India under the five-year-old agreement is the responsibility of the Reserve Bank to keep the inflation rate in the country at an annual rate of five per cent for five years (until March 31, 2021). The agreement, however, agreed that the rate would fluctuate between the two hundred and two hundred rings, i.e., between the two hundred and two hundred rings. It is noteworthy that during this time, the Reserve Bank of India has performed its duties almost smoothly. Although the inflation rate has temporarily crossed the 400-percent limit due to the Covidium effect, according to the latest information, it has fallen again, maintaining a balance of about 8 percent again like the golden child.
But the problem is that if the Reserve Bank slows interest rates and revitalizes the lending system for the economy to recover, the inflation rate could rise to more than 4 percent in the near future. To prevent this from happening, if the Reserve Bank follows a conservative monetary policy like the US Federal Reserve of the 1930s, the economic recovery here will be delayed and there will be no promising improvement in the unemployment problem.
In this context, the announcement by Finance Minister Nirmala Sitharaman last week that the five-year inflation-targeting policy is set to be revised next month is of great importance to the Indian economy. In 2020-21, the central government has borrowed a total of Rs 12.6 lakh crore. The government has had to borrow huge sums of money in the face of declining tax returns due to cowboys and rising health and social security costs. By 2021-22, the government aims to create a debt burden of Rs 12 lakh crore. In addition, it aims to reduce the fiscal deficit ratio from the current 7.5 per cent to 7.5 per cent between 2025-28. So only when the power of the economy returns will the government succeed in limiting its deficit; That’s why we need to be prepared to deal with the slightest increase in inflationary pressures by temporarily increasing government spending.
With all of this in mind, the current inflation rate may need to be revised slightly to make it 2-7 per cent in the current revaluation period to help both the government and the Reserve Bank work more efficiently. 5 percent. What should be followed here is the advice given by Kahn Kennedy in 1923: “Inflation is unfair and non-inflation is undesirable. Of the two, incompetence is the most harmful. ‘