Tuesday, May 03, 2005

govt deficits and inflation

Dear Sir,

Thnaks for your prompt reply to my mail.
the combined deficits of central and all stare govts
is more than 10% of GDP. And inflation may have fallen
in recent years ; and the current rise is due to
crude oil prices, etc.But still the basic reasons for
the 5 % inflation (that is according to govt
statistics) is too high. In reality, for the layman
and consumers, prices more than double in a decade.
And real rate of inflation is always higher than the
govt statistics.

The formula
rate of inflation = rate of growth of money suppy -
rate of growth of GDP
is always valid.

And it is obvious govt pumps in about 15% of money
into the economy. Pls elaborate and educate us all
about this fraud commited in the name of 'public
good'. and most state govts will be bankrupt soon,
even thought the economy may grow and look healthy.
Maharastra seems to top the list.

And Germany which sufferd terribly in the after math
of both the world wars experienced hyper-inlfation.
And till date the Germany's main objective is to keep
inflation below 2 % (or so). And that is why she is
today the strongest and healthiest economy in Europe.
We should learn from Germany's history.

thanks & Regards

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1 comment:

srini said...

hi Athiyaman
This is Srini.
The rate of inflation also depends on per capita income. In other words the population explosion.
For eg. If increase in money supply is 10% and also increase in GDP is 10%, there will be 10% increase in prices of commodities if the population grows at 10%. Since, there is no complete count of population avialble (they census records are ahighly incomplete and they say it could be only 40% of actual population, it is very difficult to device astrategy in India. Results of all poilcies could achieve only by chance and not by choice.