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Double-digit inflation for a year: sixth spell considering that 1953 & 1st in 25 years

Double-digit inflation for a year: 6th spell because 1953 & 1st in 25 years

In March this year, India completed 12 successive months of double-digit wholesale cost inflation (WPI inflation). This is the sixth celebration when inflation has remained over 10% for a year or longer, and it came more than a quarter of a century after the last such episode– between March 1994 and May 1995.
Three of the episodes occurred prior to the early 1980s, a duration of unpredictable inflation, while the fourth was caused among other things by the decline of the rupee in 1991-92 in the wake of a forex crisis.
The analysis of previous data, which is available considering that April 1953, reveals that earlier spells of double-digit inflation for a year or more had various causes, ranging from dry spells and wars to currency decline and significant global commodity cost shocks. Also, the high dependence on food and other imports (India got 82% of the population and 75% of the cereal production of the undistracted nation), plateauing agricultural yields in the 1950s and frequent droughts left policymakers with extremely little leg-room to manoeuvre through the price increase hazard in the early decades of Self-reliance.
Independent India saw its first extended spell of double-digit WPI inflation in the 11 months between April 1956 and February 1957. In a 2010 speech, Deepak Mohanty, then RBI executive director, linked this spell to a dry spell and a decline in farming output for two consecutive years. This was the pre-Green Revolution period, when yields had stagnated and there was no rate assistance from the government. The 2nd spell was the 7 months in between August 1964 and February 1965. The year 1965 saw the double whammy of drought as well as war with Pakistan.
Next was a 21-month-long episode in between March 1966 and November 1967. Like the previous year, 1966 too was a drought year and likewise saw a devaluation of the Indian rupee, which made imports more expensive.
India’s longest spell of double-digit inflation took place between October 1972 and March 1975. This was immediately after the 1971 war with Pakistan and the 30-month episode saw a dry spell year in 1972 and the first worldwide oil shock in 1973. The next significant episode was the 26 months in between July 1979 and August 1981. This was also triggered by the oil shock after the Iranian revolution, the Iran-Iraq war and the drought in 1979.
In the early liberalisation duration of the 1990s, the rupee was again decreased the value of making imports pricey. The 21 months between Nov 1990 and July 1992 saw WPI inflation staying stubbornly in double digits. The next over-a-year-long stretch of douible-digit inflation happened between March 1994 and Might 1995 which Mohanty in his speech credited to the hike in administered rates, deficiencies in money crop production, high fiscal deficit and big financial growth.
After Might 1995, India had not had even 6 succeeding months of 10% plus inflation till the current unbroken run. Although there is a sudden rise in oil costs after the Russia-Ukraine war, WPI inflation has been at double-digit levels from well prior to the war.

Released at Sun, 24 Apr 2022 20:05:33 +0000

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