It is going to be add on to present uncontrolled INFLATION. FM has to think twice before fulfilling commitments which he made few months back. By waiving 71, 000 Cr means appending more percentage to present Fiscal deficit.
Let’s work it out and understand it from bottom, first of all what is inflation? Well in simple words it is a rise in general level of prices of goods and services over time. Although "inflation" is sometimes used to refer to a rise in the prices of a specific set of goods or services, a rise in prices of one set (such as food) without a rise in others (such as wages) is not included in the original meaning of the word. Inflation can be thought of as a decrease in the value of the unit of currency.
It is measured as the percentage rate of change of a price index but it is not uniquely defined because there are various price indices that can be used. A small amount of inflation can be viewed as having a beneficial effect on the economy. One reason for this is that it can be difficult to renegotiate prices and wages. With generally increasing prices it is easier for relative prices to adjust. It is not correct to say that India is seeing inflation in two digits for the first time, in fact it is second time in history of India .
Previously it was in 1943, And then inflation was 53.8%. The factor behind 1943 inflation was famine. There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the “consumer price index (CPI)”, which measures consumer prices, and the GDP deflactor, which measures price variations associated with domestic production of goods and services. Present scenario point of view there is no doubt, the 11 per cent figure is way above the comfort zone, which, until the current inflationary bout, used to be considered as having an upper limit of 5 per cent. But the only way to address the problem of rising commodity (including oil) prices is to make consumers pay the full cost. This will help contain demand as consumers adjust to the higher prices, and thus bring about the required re-balancing of supply and demand. Indeed, the shock value of the 11 per cent figure means that the government will simply not raise fuel prices further, irrespective of its cost. This is hardly a sensible way to go. It is certain now that the Reserve Bank will act to dampen demand and slow down the system, by either tightening liquidity or raising interest rates further. The latter is certainly called for, since deposit rates are now lower than the inflation rate. Banks continue to report strong demand for credit, and some say that credit is growing faster now than at the same time last year. This could reflect a shift in financing, from equity (stock market prices have fallen and share offerings are few) to debt. Now we have to give a thought for our policies and certainly a lot will depend on the policy responses. Manmohan Singh is no stranger to episodes of high inflation. He was chief economic adviser to the Indira Gandhi government in the mid-1970s, when two years of 20%-plus inflation was attacked with the then-fashionable option of price controls. Then he was finance minister during the inflation spike in the mid- 1990s, when he and Reserve Bank of India governor C. Rangarajan pushed up interest rates to dizzying heights to bring inflation under control. And Now Dr Manmohan Singh is Prime Minister, and inflation is once again headed for double digits. His government has tried a mild version of the 1970s medicine — trade restrictions and moral suasion to hold the price line in commodities such as steel. But it is a matter of time before the 1990s medicine will have to be taken in a larger dose — higher interest rates. There are several reasons why we should worry about the spike in the inflation rate. Inflation is a tax on the poor and long-term lenders. Because Inflation is already too high, though it is definitely not at economy-wrecking levels. But it’s best time to be serious about the threat it poses and think before implementing any policy just for raising votes