Impact of Inflation on Indian Economy: Recognizing How Indians are Affected by Inflation

The rise in the average price of goods and services throughout the economy is referred to normally as "inflation". India's population has been significantly impacted because of raise of this general price level. The huge supply of money in the economy increases the demand for goods and services, that’s leading to inflation. Demand-Pull Inflation: When total demand rises without accompanying increases in the production of goods and services, inflation of this kind takes place.

While we are analysing the past data, India has had a persistent inflation issue throughout its economic history. In the period of 1970s and 1980s, India witnessed high and long-lasting national inflation, this inflationary pressure was due to a number of issues, which included dependency on imports, rising oil costs, supply-side restrictions, etc. The monetary policy adjustments and economic reforms have assisted India in keeping inflation under control.

Inflation's Impact on India's Economy

The Indian economy is greatly impacted by inflation, which also has an influence on people's daily life. To appreciate the seriousness of the problem, it is imperative to investigate these repercussions.

Rising Cost of Living: -

Ø  Increasing Food Prices: Food prices are a significant component of the consumer basket for most Indians. Inflation leads to an increase in food prices, which directly affects household budgets.

Ø  Hike in Housing Expenses: Housing is another area where inflation has a considerable impact. Rising inflation drives up the cost of construction materials, labor, and land prices, making housing more expensive

Ø  Impact on Healthcare and Education Costs: Inflation also affects crucial sectors such as healthcare and education. When the cost of living increases, also raise the cost of healthcare services and educational institutions

Increase Wage-Price

Ø  Effect on Salaries and Household Income: As the general price level increases, individuals and households experience a decline in their purchasing power. In such situations, workers demand higher wages.

Ø  leading to cost-cutting: When inflation is high, businesses may struggle to maintain their profitability, leading to cost-cutting measures such as layoffs or freezing hiring processes.

Ø  Income Inequality: individuals with fixed incomes or those working in low-paying jobs face difficulties in meeting their basic needs

Economic Growth and Investment

Ø  Impact on Disposable Income and Saving Habits: As inflation increases the purchasing power of individuals, they may have less disposable income available for savings and investments. Reduced savings can limit the availability of funds for capital formation and investment, this is a hurdle in economic growth and development.

Ø  Challenges for Businesses and Entrepreneurs

Ø  Effect on FDI flow to country

Inflation impacts various sectors in India differently, and it is important to assess its effects on key sectors of the economy.

1)     Farmer Distress and Input Costs: Inflation affects the agriculture sector in multiple ways. Rising input costs, such as fertilizers, seeds, and machinery, increase the production costs for farmers. This reduces their profit margins and can lead to financial distress, especially for small and marginal farmers.

2)     Agricultural Productivity and Government Policies: To mitigate the impact of inflation in the agricultural sector, the government implements various policies and interventions. These can include providing subsidies on inputs, agricultural credit, and improving irrigation facilities to enhance agricultural productivity.

Indians' lives are significantly impacted by inflation, which has an adverse effect on the economy and the general well-being of the populace. Inflation must be properly understood and managed, as evidenced by the issues faced by various industries, wage-price spirals, and rising living expenses. Together, the government and central bank can reduce the negative impacts of inflation, guarantee sustainable economic growth, and protect the welfare of the Indian populace by enacting solid fiscal and monetary policies.

 Suhaib P, Assistant Professor, Department of Commerce, Al Shifa College of Arts & Science, Kizhattoor, Perinthalmanna