Ishan Sharma, PGDBM, XLRI
"It is the prime duty of the new government to tackle inflation"
The biggest challenge faced by governments of emerging economies today is to choose between growth and inflation. Both are intertwined. Growth in emerging economies like India can be achieved with comparatively low capital infusion. Such growth turns unsustainable, however, without inflation curbing measures in place.
In 2008/09, the government tried to promote growth by announcing three stimulus packages to the tune of Rs 200,000 crore within three months. Short-term growth was achieved, but in the longer term, inflation spiralled and it has become extremely difficult to achieve similar growth levels. The inflation rate for India is 8.3 per cent, lower only than those of crisis-stricken countries like Ukraine, Afghanistan, Egypt, Venezuela, Sudan, and Zimbabwe to name a few. Such trends of continuous inflation in the past have exploded into uncontrollable hyperinflation, which has a devastating effect on a country's economy and takes decades to recover from.
There have been cases in the past where governments, trying to stimulate growth, made deficits so high they could not pay off their debts and this spiralled into hyperinflation. The possibility of an El Nino this year also doesn't help India's cause. India will face severe effects if there is a drought. It is thus the prime duty of the new government in tandem with the RBI to roll out policies to tackle inflation.