In India, this basket is composed of three groups: Primary Articles (22.62% of total weight), Fuel and Power (13.15%) and Manufactured Products (64.23%).
The challenges in developing economy are many, especially when in context of the monetary policy with the Central Bank, the inflation and price stability phenomenon.
There has been a universal argument these days when monetary policy is determined to be a key element in depicting and controlling inflation.
A good environment of price stability happens to create saving mobilisation and a sustained economic growth.
There is an agreement that the central banks have aimed to introduce the target of price stability while an argument supports it for what that means in practice.
Further, in case of a low output a tightened monetary policy would affect the production in a much more severe manner.
The bumper harvest in 1998–99 with a buffer yield in wheat, sugarcane, and pulses had led to an early supply condition further driving their prices from what were they in the last year.
The normal growth cycles accompanied with the international price pressures has several times being characterized by domestic uncertainties.
According to some experts the policy of RBI to absorb all dollars coming into the Indian economy contributes to the appreciation of the rupee.
[6] Further, on account of cheap products being imported in the country which are made on a high technological and capital intensive techniques happen to either increase the price of domestic raw materials in the global market or they are forced to sell at a cheaper price, hence fetching heavy losses.
The major determinant of the inflation in regard to the employment generation and growth is depicted by the Phillips curve.
This has generally been seen in India in context with the agrarian society where due to droughts and floods or inadequate methods for the storage of grains leads to lesser or deteriorated output hence increasing the prices for the commodities as the demand remains the same.
Similarly, hoarding has been a problem of major concern in India where onion prices have shot high.
Hence, the nominal exchange rate and the import inflation are a measures that depict the competitiveness and challenges for the economy.
Historically, from 1960 until 2023, the annual inflation rate in India averaged 7.37% reaching an all-time high of 28.60% in 1974 and a record low of -7.63% in 1976.
GDP Deflator is a composite index of time series constructed independently by Angus Maddison and government departments (since 1950).