The Inflation Problem in India

The Indian Government has long been struggling to tame the inflationary pressures that run in the excess of 6%. Since early 2010, the Reserve Bank of India has increased the interest rates six times, but, has still failed to meet the longing objectives. Why?

The simple answer is that they are trying to fix the wrong side of the problem. It's true that demand is high in the Indian market, but, more than just demand, it is the supply-side that is highly constrained! By increasing the base rates, the RBI has just been trying to bring down the demand, so as to tame the inflation. The actual, and thus the long-term, solution to the problem requires on the government part to invest billions of dollars in fixing the pathetic supply-side problems. But, fixing the supply-side of the problem requires guts, courage, discipline, honesty, accountability, high-standards of governance, and tons of money.

Instead of tackling the real-and-higly-challenging problem, the government is busy giving the world, especially to the global investors, an eyewash by frequently increasing the interest rates. Sad? Indeed.