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How Budget Tries to Rein Inflation?

India has so far witnessed one of the longest pleasures of food inflation, which frequently rose to double-digits, and spilled into general inflation, which has been stubborn at around 9% per annum through the first eight months of the current fiscal. India, like most other emerging nations, was grappling with the problem of inflation before the financial crisis of 2008 started.  Global commodity prices, on the other hand exhibited uptrend since mid-2010 fuelled by fresh concerns over supply prospects and further, political tensions in the MENA region significantly impacted crude oil prices. Given the high global commodity prices and their possibility to remain firm, the threat to price stability from global inflation continued to carry on in 2011.

Despite the 13 policy rate hikes, inflation remained higher and persisted at above the comfort level of the Reserve Bank of India (RBI), throughout the current financial year. The continued high inflation not only affected different classes of people in society in different ways and different degrees, but also slowed the economic growth to its 3-year low level. Though inflation moderated significantly towards the end of 2011, fuel prices are still affecting the lives of one and all in the country. Further to maintain the inflation on a soft patch, the supply side constraint need to be checked, which is the only way to put the government and policy makers on rest.                                            

Consequently, the Union Budget is likely to place more emphasis on keeping the inflation under its comfort zone by announcing measures to improve the supply-side factors. The Budget is expected to include incentives for investments in sectors such as cold chains and agricultural supply chains, and promoting cheaper crop loan facility to farmers, which will play a significant role in enhancing the country's food grains production, etc.

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