April 04, 2017 @ 01:15 PM

Economic reforms can halt inflation

Some of B schools and even new IIMs have replaced GD with WAT hence, Written Ability Test has also become a tool to test MBA aspirant on assessing overall communication skills and personality, so it is also equally important and crucial component of MBA admission process.
 
Read WAT topic:  Economic reforms can halt inflation
 
The Indian government has been trying to reduce the rate of inflation in the country for years but it has not been able to reduce the inflation rate to below 8%. In the past few months, we have seen a reduction in the inflation rate, from 10.17% in October 2013 to 8.79% in January 2014, but India’s rate of inflation is still higher than most of the countries in Asia. The government believes that through economic reforms, it can bring down the rate of inflation further.
 
Inflation rate essentially increases when the aggregate demand in the economy exceeds the aggregate supply. With the population increasing and more and more people having greater disposable income, the demand for products and services increases; however, when technological advancements and growth of industries are not able to keep pace with this increase in demand, it leads to greater commodity prices and this is termed as inflation. So, to keep inflation down, India has to either reduce the demand for goods or increase the supply of goods. And economic reforms help to do just that – increase the supply of goods.
 
By increasing the Foreign Direct Investment (FDI) caps and reducing economic barriers to entry, the Indian government hopes to attract more companies to set up firms in India and this will in turn, help to increase the supply of goods. This way, the aggregate supply will be able to surpass the aggregate demand and eventually, the inflation rate in India can be brought down.
 
In addition, with an increase in the inflow of funds into India, the government will be able to invest heavily in technology, which will help increase the supply of agricultural products. Currently, most of the farmers in India are at the mercy of nature – so, when the monsoon is low, the harvests become low too. And this is one of the reasons why agricultural productivity is low in India and is one of the reasons for the high inflation rate in India too. 
 
India will be able to reduce its inflation rate by increasing the aggregate supply in the economy and ensuring that the aggregate demand does not exceed the aggregate supply. Economic reforms such as increasing FDI caps and ensuring that the Indian business climate is favorable for both local and foreign firms will definitely help in keeping the rate of inflation low.
 
 
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