In a developing economy like ours, the absence of a social security safety net and absence of income and employment insurance in the unorganised sector (which employs a significant portion of our population), severely aggravates the inflationary consequences for lower and lower-middle class families.

The published inflation rate clouds the all important rate of increase in the price of basic food articles which affects the majority of our population. Going by RBI’s action it is clear that it does not mind sacrificing growth to keep the inflationary pressures under control. Money supply is one of the major factors which determine the demand for goods and services directly influencing their prices.  It is clear from the RBI numbers money supply is increasing at a rapid rate. 

The latest announcements to increase REPO rates and CRR rates are aimed at reducing the money supply.  These measures announced by RBI will certainly have adverse impact on the growth and profitability in the economy.  With strong head winds blowing in terms of commodity prices, lower growth rates around the world, the additional financial cost come as a double whammy. The growth rates certainly will soften and we are looking at a long haul of under 9 per cent growth rates or even below 8 per cent growth rates. It surprises many economists that RBI is not doing enough on the exchange rate front.  A strong rupee would also help cool the inflation to a certain extent by making the imported commodities cheaper and also discouraging food exports etc. and thus tackling the supply side.

The writer is the President of Fedaration of Karnataka Chambers of Commerce & Industry and can be reached at his E mail: kb_vijay@yahoo.com