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Measures to check inflation

The various measures to check inflation can be studied under three main heads – monetary and fiscal measures, control over investment and other measures.

Monetary measures

These measures are used to check the supply of currency and credit. They consist of:
  • Quantitative measures: open market operations, statutory reserve requirements and bank rates
  • Qualitative measures: margin requirements, moral suasion, etc.
By selling Government securities in the open market, it takes away liquidity from the economy. This lowers balances with banks, which in turn reduces their capacity to create credit or lend money for investment purposes. By raising the bank rate or statutory reserves rates, the RBI controls liquidity and credit and ultimately, prices.

Fiscal measures

These measures are taken by the Government with regard to taxation, expenditure and public borrowings. A proper tax policy will avoid tax cuts. It may also seek to introduce some increase in the existing rates so as to reduce the purchasing power of the people and thus, reduce the pressure of demand on prices. In India, fiscal tools are often used to control inflation.

Control over investment

The initial investment leads to a large increase in income and expenditure and the demand for both, consumer and capital goods goes up speedily. Therefore, it is necessary to control investments and keep a watch so that the resources of the community are employed for investment which does not have the effect of increasing inflation.

Other measures

These measures have been divided into: Short term measures and long term measures. By implementing the below mentioned measures, inflation can be controlled.
Short term measures
Long term measures
Public distribution of scarce essential commodities through fair price shops
Accelerating economic growth, especially in goods which have a direct bearing in the general prices and cost of living
Rationing of essential goods in times of shortages
Control over movement of commodities from one state to another
Certain restrictions on present consumption in order to improve savings and investments in the economy
Importing of basic goods, if necessary

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