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Indian And Chinese Policies To Tackle Inflation

2420 words - 10 pages

Indian and Chinese policies to tackle inflation


India and china the two Asian giant, have shown economic growth in last few decades. The expansion of the economy brought high inflation in both countries. Inflation impacts all types of the consumers while rich or poor, it will become a real problem if the countries didn’t adopt policies to decrease the inflation rate. India and china have a very fast economic growth with fast population. The government and the central bank have to work beside to curb the inflation using two main policies are monetary policy and fiscal policy. In the monetary policy the central bank has to manage the many supply in the market and also control ...view middle of the document...

India still facing high inflation rate besides increasing in the total GDP which is a good living standard internationally but there is inequality which poor Indian citizens can’t afford to cover their essential needs so India is taking in her consideration the mechanism to tackle inflation. There are two tools to measure inflation W.P.I wholesale price index or C.P.I consumer price index. India applies W.P.I to calculate the inflation rate. India started to apply monetary policy after 1991 crisis and then India started to emphasis in macroeconomics and price stability. In term of rupee (India currency) during inflation the RBI will issue new notes which will replace the old note this will help in reducing the money supply on the economy.

China one of the developing countries who are facing high inflation like India, but the Chinese inflation associated with both rapid rates of money growth and huge budget deficit. People’s bank of china (central bank of china) PBC takes implementation of the monetary policy and her priority is controlling inflation. Unlike India china calculated the inflation using C.P.I. china central bank take care of the liquidity of the money. China has been successful increasing the GDP but it faces increasing in the inflation level as well. The price stability has been the problem number one in china. They used to call it inflationary pressures china has made anti-inflationary policy. The policy said tightening the money supply. The bank reserve ratio is the amount of money (consumer deposits, notes) that commercial banks must hold as a reserve. PBC believed that the bank reserve ratio will play important role in controlling the money supply and it’s become a favorite tool in china’s central bank. Every time the inflation rate increased the PBC adjust the reserve ratio. Increasing the RRR will reduce the money supply by decreasing the borrowing and also the Chinese citizen will not be able to take leans. Foreign exchange rate is the target of the monetary measures in china. The PBC targeting the CPI unlike India targeting W.P.I. East Asian region experienced economic crisis in 1997 and the central bank focus in the economic crisis rather than inflation in that period unlike India started to concentrate in macroeconomic since 1991 and that why India has more measures to control inflation. There are five instruments that bank use dot tackle inflation same as India but in a different way. PBC use OMO open market operation, RRR, interest rate to control the inflation. During inflation china’s central bank targeting the stability of the price the PBC applied the `implicit rule” playing with interest rate increasing the interest rate to reduce the money inflow based in the quantity theory. PBC sell bonds to the OMO to reduce the money circulation. The inflation becomes the main obstacle toward china’s growth. PBC regulate the capital flows and decrease the foreign exchange intervention. Mixed of the three monetary...

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