Rising Inflation Poses Risk to the Recovery in the Indian Economy

It must be noted by the central government that if the inflation continues to elevate in coming months and breaches the upper band of the targeted consumer inflation, it will hurt every sector of the economy and the demand. The fall in the demand in the economy will affect revenues of most of the businesses particularly the micro, small and medium enterprises (MSMEs) adversely. This fall in revenues will increase the risk of survival for most of these MSMEs and might lead to increased numbers of insolvencies and bankruptcies in the economy. Rise in the insolvencies and bankruptcies will worsen the non-performing assets (NPA) conditions in the economy gravitating and complicating the banking and financial sector crisis further.

In such a peculiar situation only the central government along with the state governments can provide relief to the economy else increasing inflation will extend the economic recovery period to create more problems for the economy. The governments should at this point of time put aside their greed to collect more revenues from the petroleum products to finance the increasing deficit and put a dynamic mechanism to check the rising prices of the petroleum products. Rather they should focus on diversifying and collecting more revenues from other sectors of the economy by increasing the economic activities as further increase in the inflation would be a constraint for the economy as a whole.

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