Since the economic reforms in 1991, the Indian economy has been growing year after year. The past decade and a half has seen the Gross Domestic product that is the GDP rise to scorching height. But the downside is that in the past few years, the inflation rate has also been going up which a cause of concern for the economists as well as the members of the Government. Thus this high growth of economy has also been a reason for the rise in the Inflation rates.
The inflation rates are closely monitored by the Government for it is the inflation rate that has a direct impact on the common man. The Gross domestic product or the GDP may be extremely high but it may not have a direct impact on the common man where as the inflation rate surely does. Thus a high inflation rate is detrimental to the overall growth of the country and hence should be avoided. The Reserve bank of India or the RBI takes effective steps in order to reduce the rate of inflation whenever it reaches alarming heights. Inflation has a direct impact on the prices of fruits, vegetables and other basic necessities. The Reserve bank if India some times increases the cash reserve ratio or the CRR in order to arrest the rampaging rate of inflation.
The rate of Inflation if within the range of two o four percent is said to be moderate but once it starts to grow beyond the five percent it raises the alarm bells. India has at times witnessed an inflation rate of greater than seven percent as well and touching eight or nine percent. In such circumstances, the Government gets under tremendous pressure to start trying to reduce the rate of inflation.