Nothing Much To Rave About

Oil and petroleum products have a 10.7 per cent weightage in the inflation index. Even a 15 per cent price hike here could have pushed the inflation rate up by three-to-four points.

A low rate of inflation could be harmful to the economy at present as it could dampen growth. At present, the government needs to increase public investment, particularly in infrastructure and reduce its current expenditure. Growth in government capital expenditure on both asset creation and maintenance has been slowing down.

Higher government spending in infrastructure will reduce the bottlenecks in the economy, which will in turn attract private investment. The capital expenditure in the seventh five-year plan for infrastructure was 7.2 per cent and reduced to 4.9 per cent in the Eighth Plan as private investment was not in tune with expectations.

 

Also, inflation implies low expectation of demand growth and this in turn affects manufacturing sector expectations and production suffers. Economists feel that it may be better to have inflation at 8-10 per cent, but by containing inflation at the cost of development can be disastrous.