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Indian economy has slipped into deflation for the first time in over 30 years, the last time being in March 1978. The question that immediately arises in one's mind is whether deflation brings with it all the negatives associated with it and also whether it is an indication of an economy perilously close to recession.
Facts however paint a different picture than the expected outcomes and indicators. For one, the falling wholesale prices are not accompanied by contracting demands. This itself is an assurance that the economy is still healthy.
Ashok Chawla, a Finance Ministry top official, assuages fears saying the price drop did not signify deterioration in India's overall economic conditions, and would not lead to any shift in economic policy.
"These numbers do not reflect any contraction of demand," he said. "In fact, we are doing well and the country is on the path of improved economic performance."
Meanwhile a study done by Citigroup indicates that the declining price levels are largely statistical and caused by the sharply lower fuel prices and that inflationary pressures remained. In fact the economy is predicted to be back to its usual inflationary mode by December.
"You will see negative numbers for the following weeks, but by year-end we do expect inflation to go back to around 4 per cent," says Rohini Malkani of Citigroup.
Reserve Bank of India Governor D Subbarao feels there is no risk of deflation as India doesn't suffer from demand constraints. He added that there also are several other indicators to monitor inflation and not just the wholesale price index. And some of these other measures show that prices of food and primary articles are still high.
The RBI Governor said it was important for stimulus plans to work through fully and that they have had some effect on parts of the economy, such as steel, cement, two-wheelers, cars, cargo and freight traffic.
About the right course of action, it has been mentioned above that the Citigroup report pinned blame on fuel prices for deflation. The government recognized this fact and was also tempted to hike fuel prices not just to combat deflation but because international crude prices have been inching up. The lesson for consumer then seems to be: Shelling out more for petro products was only on expected lines.
What else can I help you with?
What are the disadvantages of deflation?
Deflation is the fall of the general price market. The disadvantages of deflation are large levels of unemployment and an unstable economy.
Is deflation bad for the economy?
Deflation can be harmful to the economy because it can lead to decreased consumer spending, lower business profits, and potentially higher unemployment rates. It can also increase the burden of debt on individuals and businesses. Overall, deflation is generally considered to have negative effects on economic growth and stability.
In the absence of unexpected shocks does the economy tend to experience inflation or deflation?
inflation
Impact of world bank loan on Indian economy?
Manmohan singh is a PM of india ,as result .
Is the deflation good for the economy?
yes,deflation...in my own opinion is good to the country,but permit me to say the little i know about (inflation) and( deflation).inflation...means when there is excess of money circulating within a given country while deflation means when there is less money.......so deflation is good for a country in a way that,there will be no inappropraite in terms of goods and services,,
What are the disadvantages of deflation?
Deflation is the fall of the general price market. The disadvantages of deflation are large levels of unemployment and an unstable economy.
How was the Indian economy after world war 1?
India's economy was pushed to near bankruptcy
What is the the slack season in Indian economy?
January to June is the slack season in India's economy.
What role has technology played in India's economic growth?
Technology has revitalized the Indian economy - it was a new industry that could employ many of India's people.
What is the impact of Indian railway?
Indian railway has been a major boost in Indian economy. It has played a major part in progress of India.
Why there is less demand for Indian products?
the uncertainty of the economy of India keeps foreign investors and buyers from buying from India.
What will be the effect on economy if India go for war?
There will be a profound pressure on the Indian fiscal resources and FOREX reserves in the depleting economy as a micro impact. The pressures on India will also be fairly evident in the the receding global economy.
Is deflation bad for the economy?
Deflation can be harmful to the economy because it can lead to decreased consumer spending, lower business profits, and potentially higher unemployment rates. It can also increase the burden of debt on individuals and businesses. Overall, deflation is generally considered to have negative effects on economic growth and stability.
In the absence of unexpected shocks does the economy tend to experience inflation or deflation?
inflation
What are the Economic developments in Rural development?
"Real India lies in Rural India", 'India is a land of 'villages', 'Rural economy is the backbone of the Indian economy', 'India lies in its villages', etc, are the perpetual and common slogans. India is predominantly an Agricultural Economy and the rural markets hold immense potentials for any company to expand.
Impact of world bank loan on Indian economy?
Manmohan singh is a PM of india ,as result .
What is the impact of brain drain in Indian Economy?
India's talent going outside and becoming asset for some other countryIndia's economy is becoming the economy of other country
