Summary
The Inflation Scare
Over the last two months, the government has tried to curb inflation through various interventions-from reducing taxes to raising the cost of loans to nudging banks to go slow on lending. The question is: will these moves curb growth and dampen investor sentiment? Quite possible. For, blunting the spending potential of consumers will signal companies to put off investments, in effect, hamper economic growth. On the other hand, the reason for these interventions-inflation, hovering around a two-year high of 6.73 per cent for the last two weeks-is beginning to worry the companies, since higher inflation will dent profitability. That's because rising input costs (the reason for inflation) cannot be transferred to the consumer without sales getting affected.See the full content of this document
Extract
The Inflation Scare
Clearly, the intervention is more in the nature of chemotherapy- side effects galore.
While the government is grappling with the pace and intensity of intervention to balance inflation and growth, good economics demands a wider debate to derive an optimal solution for the problem: First, how about inflation-led growth? Secondly, why not hasten the pace of ...See the full content of this document
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