Two months back when India purchased a stupendous 200 tons of gold from International Monetary Fund, many were reminded of those dark days two decades back when the country was forced to sell its 67 tons of gold to procure dollars to meet loan repayment commitments.
In early 90s, when dollar ruled the roost, its possession meant ability to survive in the international stage. In June ’91, when Indian government sold the gold to the Bank of England and Union Bank of Switzerland, the country’s economy was at its lowest. India’s foreign reserve was barely $2 billion.
India’s economy has undergone dramatic change over these last two decades. From a weakling, it has developed into something respectable. The foreign reserve has now reached a healthy $285 billion.
Though economy is improving, even surpassing expectations, there is still much to accomplish in many areas. Inflation is speeding ahead like a runaway horse. The biggest challenge to economy now is to find a balance between GDP growth and inflation.
After displaying remission tendencies in October last, inflation is climbing steadily from November. Food price inflation is the worst at around 20% with prices of all the essential commodities going through the roof. With sugar price breaching the Rs.50 mark, it is high time action is taken to rein in the prices.
One of the options before government is to withdraw the stimulus packages, introduced to help the economy overcome recession. Another is to hike up interest rates. Both actions have a double-edged effect, as they might end up damaging the frail economy, which is recovering well from the global economic downturn. This has prompted the government to adopt a wait and watch approach, instead of taking hasty action.
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