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Kerala PSC Indian Economy Book Study Materials Page 177Book's First Page
n lation and siness le 7.13 developing economies inflation is unfavourable is also known as the ‘comfort zone’ of inflation for their balance of trade. This is because of in India since 2015. Similarly for Australia, New composition of their foreign trade. The benefit to Zealand, the USA, Canada and the European export which inflation brings in to a developing Union, the healthy range today is 1 to 3 per cent. economy is usually lower than the loss it incur due This is why every economy today utilises inflation to its compulsory imports which become costlier targeting as part of its monetary policy. due to inflation. Inflation beyond the limits of the decided/ prescribed range brings in recession to depressions. 13. On Employment (We will see them in Section B of this Chapter, Inflation increases employment in the short-run, ‘Business Cycle.) but becomes neutral or even negative in the long run (see the Phillips Curve and the NAIRU in the InflatIon In IndIa earlier sections). Every economy calculates its inflation for efficient 14. On Wages financial administration as the multi-dimensional effects of inflation make it necessary. India Inflation increases the nominal (face) value of calculates its inflation on two price indices, i.e., wages, while their real value falls. That is why the wholesale price index (WPI) and the consumer there is a negative impact of inflation on the price index (CPI). While the WPI-inflation is used purchasing power and living standard of wage at the macro-level policymaking, the CPI-inflation employees. To neutralise this negative impact the is used for micro-level analyses. The inflation at Indian government provides dearness allowance the WPI is the inflation of the economy. Both the to its employees twice a year. indices follow the ‘point-to-point’ method and may be shown in points (i.e., digit) as well as in 15. On the Self-employed percentage relative to a particular base year. Inflation has a neutralising impact on the self- employed people in the short-run. But in the WholesAle Price inDex long-run they also get affected as the economy as The first index number of wholesale prices a whole gets affected. commenced in India for the week January 10, 1942. It was having the base week ending August 16. On the Economy 19, 1939 = 100, which was published by the office All the segments discussed above belong to an of the Economic Adviser to the Government of economy, but we must know the overall short- India (Ministry of Industry).40 Independent term and long-term impacts of inflation on an India followed the same series with more number economy. of commodities included in the index. Several Experiences of the world economies in the changes regarding inclusion of commodities, late 1980s show that a particular level of inflation assigning them the logical weights took place in is healthy for an economy. This specific level of the coming times including revisions in the base inflation was called as the ‘range’ of inflation and years for the WPI. The WPI base year has been every economy needs to calculate its own range. revised five times till date. The base years are as Inflation beyond both the limits of the range is given below: never healthy for any economy. In the case of India, 40. Ministry of Finance, Economic Survey 2006–07 (New it is considered 2 to 6 per cent at CPI(C), which Delhi: Government of India, 2007), p. 85.