The following points highlight the two main anti-inflationary policies adopted in India. The policies are: 1. Demand Management Policy 2. Supply Management Policy.
Anti-Inflationary Policy: # 1.
Demand Management Policy:
(i) Fiscal measures:
For controlling inflationary rise in prices, the Government of India promulgated three ordinances to limit the volume of disposable income in the hands of the public.
(a) The Additional Emolument Ordinance (compulsory deposit) which impounded all wage increase for one year and 50 per cent of additional dearness allowance for two years;
(b) The companies (Temporary Restrictions on Dividends) Ordinance to freeze dividends on equity and preference shares in excess of one third on profits after tax or 12 per cent on the face value of shares whichever was lower; and
(c) The Compulsory Deposit Scheme (Income Tax Payers) Ordinancefor introducing compulsory deposit scheme for those income-tax payers paying tax on income in excess of Rs 15,000 per annum at the rate of 4 per cent of their income up to Rs 25,000, 6 per cent up to Rs 70,000 and 8 per cent on any amount above that limit.
These three anti-inflationary ordinances were designed mainly to freeze wage, salaries and dividends to have a fiscal control on demand side. However, the compulsory deposit scheme was totally abolished since April, 1985.
Further, to have control on public expenditure, the Government of India had initiated a package of programmes in January 1984 to curtail unproductive expenditure, to postpone any recruitments in Government posts etc.
Again to control the volume of black money in the country the Government introduced various measures likeVoluntary Disclosure Scheme, 1965, 1975 and 1997, demonetization of high denomination currency notes above Rs 1,000 in 1978, special bearer bonds in 1981, Deposit with the National Housing Bank in 1991.
Besides, to attract non-Resident Indian (NRI) investment in the country various NRI Investment schemes were announced. These also include two schemes introduced in 1991 budget for NRI-foreign exchange remittance without paying any tax and issue of National Development Bonds in U.S. Dollars by the SBI.
(ii) Monetary measures:
Monetary measures for controlling inflation include the monetary policy of RBI to adopt general and selective credit controls and more specifically to impose restrictions of bank credit on inflation-sensitive goods. As an anti-inflationary weapon, enhancement of Bank Rate was frequently made by RBI from 7 to 9 percent in 1974 to 9 to 10 per cent in 1981 and again 10 to 11 per cent in 1991.
In 1981 RBI raised the Cash Reserve Ratio (CRR) from 6 to 8 per cent in order to control monetary in the country. At present the CRR is 6 per cent. During the Seventh Plan, steps were taken by the RBI to tighten the selective credit controls and to mop up excess liquidity from the market.
Anti-Inflationary Policy: # 2.
Supply Management Policy:
Policy on supply management includes all those measures introduced by the Government in relation to supply, distribution system and control over prices of essential commodities like rice, wheat, sugar, edible oil and other commodities of mass consumption.
Main idea behind such policy is to check undue increase in the prices of essential commodities through enlargement of domestic supply and streamlining the network of public distribution system (PDS).
Policy of supply management includes following measures introduced by the Government at different times:
1. Fixation of Maximum Prices:
Various State Governments have been asked to fix both the wholesale and retail prices of food grains and other essential commodities to check hoarding and speculation. The Central Government also fixes the minimum procurement prices of major crops.
2. Dual Pricing System:
A system of dual pricing has been adopted by the Government for the goods like sugar, cement, paper etc. so as to enable the poorer sections to acquire these commodities-at controlled prices and other sections to buy these commodities at higher open market prices.
3. Public Distribution System:
In order to distribute essential commodities a huge network of public distribution system has been developed by the Government and over 4 lakh fair price shops have already set to cover a population over 500 million. In the Eighth Plan (1992-97) improvement of public distribution system has been given top priority.
4. To import food grains, edible oil and other essential commodities in order to tide over food crisis since 1962 onwards.
5. To raise the production of oilseeds and edible oil, the Government has undertaken a long term and medium term plan.
6. To increase agricultural production through the adoption of new agriculture strategy i.e., through the application of HYV seeds, fertilizer, pesticides, modern inputs etc.
7. To control the private trade in food grains, the Government has issued licenses to traders and enforces the Essential Commodities Act to fix to maximum holding of stocks by a trader.
8. The Government has also enforced the Consumers Protection Act in order to protect the interest of the general consumers. Non-governmental organisations are also being encouraged to take up the work of monitoring prices of essential commodities, wherever necessary.
In order to build a strong consumers movement in the country, about 600 voluntary consumer organisations have come into being since the relevant Act was passed in 1986.