Inflation & Deflation

Few months back everyone were talking about inflation because the inflation percentage exceeded more than 10% mainly due increase in the general level of prices for goods and services. Last week the announcement from the central government shows inflation has come to less than 1% and this will lead to deflation.

Deflation can be caused also by a decrease in government personal investment & general spending by the people. The opposite of inflation which is deflation has its side effects i.e increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. RBI has attempted to stop severe deflation and inflation in an attempt to keep the excessive drop in prices to a minimum.Deflationary periods can be both short term or long term. Japan, for example, had a period of deflation lasting decades starting in the early 1990's. The Japanese government lowered interest rates to try and stimulate inflation, to no avail. Zero interest rate policy ended in July of 2006.

Now the big question is after elections what the newly appointed government is going to do to stop Inflation/deflation? We have to change our economy policy and we have to concentrate more on agriculture. If you see before 90’s our economy was not dependent on global economy and when globalization started India gets benefited by getting more FDI which led to more dependence on western countries but we failed to concentrate on agriculture and gave away large tracts of cultivable land to SEZs. Now we are feeling the pinch.

Government should learn a lesson now and concentrate on Agriculture. At least 60% of the country should concentrate on Agriculture which will help us in times like this whereby when there is a recession in the western world we are caught in the whirlpool. Lets hope for the best that India becomes a developed nation by 2020.