India’s economy, which grew at an annual rate of 5.8 percent for the last two years, is encountering inflationary headwinds that drove consumer prices up 14.9 percent this year over last, the biggest jump amongst the Group of 20 nations.
“For India, there really isn’t a more important issue than inflation,” Robert Prior-Wandesforde HBSC economist told Bloomberg.
“For the poor, when you talk about food, this is a life-or-death issue.”
According to Prior-Wandesforde, members of India’s growing population of affluent city dwellers, who consume more calories and increase the demand for meat, are one inflation driver because producing meat requires more grain than simply consuming grain itself.
And, he says, the Indian government’s preservation of farm subsidies prevents more efficient farming methods from being adopted.
Though inflation has caused Indian governments to fall in years past, thus far, Prime Minister Singh’s government has had no success in halting it despite the fact that the country’s central bank has increased interest rates.
One reason is that India’s agricultural production depends on the amount of rain the country’s crop-growing regions receive.
Some investors believe that accelerating inflation in India is a consequence of a strong economy.
“The Reserve Bank of India is likely to raise interest rates soon, and that could lift the value of the rupee versus the U.S. dollar,” writes financial journalist Don Dion at thestreet.com. “Usually inflation is a negative, but these are not usual times.”
“Much of the world may look on with envy as India enjoys robust growth and rising prices, the opposite of slow growing or stagnant developed economies that cannot seem to generate any inflation.”
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