Maggie's

(Reply on Shuang’s post https://blogs.ubc.ca/shuangliu/2012/10/08/there-is-an-urgent-need-to-accelerate-investment-in-india/#content)

In Shuang’s post, she stated clearly what inflation is and gave examples how government acts help fight the inflation. There are usually two ways to help fighting inflation, the fiscal policy and the monetary policy. The former one is government actions, and the later one is the policy related to the money and interest rate. I agree with Shuang, though the market is fluctuated and will finally adjusted by itself, it takes time. Sometime policies involvement is not an bad idea.

Here in the article, India’s GDP growth is decreasing and misses the expectation. Facing the terrible economy, the policy they choose is the fiscal policy. Obviously the government want to help with it.

“The government’s policy changes began with a 14 percent increase in diesel prices announced on Sept. 13 to restrain expenditure on compensation for below-cost sales. The administration also said it will pare the supply of subsidized cooking gas.”

In this situation, government give subsidies to the victims who are suffering the inflation. The subsidies create the deficit of the government budget. The IMF suggests the government to reform the structure “includes tax and spending reforms, in particular, reducing or eliminating subsidies, while protecting the poor.”

In my opinion, fiscal policy is good, but each coin has two sides. While it is helping boosting the economy, it creates some other problems such as the deficit. Instead of remaining the monetary policy unchanged, use appropriate monetary policies can also balance the economy.