INFLATION AND WORKING POPULATION, a captivating relationship

By moumita389
18-July-2018 4:56:17 AM
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INFLATION AND WORKING POPULATION, a captivating relationship

Inflation a word, which generally bring lines on each of our forehead. However these lines have two different reasons. Some economic power of the world are struggling and making policies to push their inflation higher, while others like India, is making policies to put a cap on the inflation numbers.

Other word in our today’s topic is working-population. Population is definitely  a matter of worry for India. With almost 1/3 of surface area of China, India ‘s population is almost nearing China  and is expected to surpass China by 2022. Currently as per the reports of UN, India homes almost 1.31 billion individual whereas  the count in China is as high as 1.38 billion.

Thus, for India is standing on double edged sword. However, there is one positive aspect of larger population i.e., larger the population, larger will be number of individual willing to work , thus a higher working population.

India is one such economy , which has one of the youngest population, thus good number of individual are getting ready to join workforce of the economy.

Inflation plays a vital role in deciding  about the monetary policy of the economy.RBI, the apex banking institution of India majorly takes into accounts six factors namely, while taking a view over inflation, crude prices, household inflationary expectations, revisions in the minimum support price (MSP), house rent allowance (HRA) revisions, good monsoons and global financial developments.

We do leave a very important aspect of population to take into account, while considering our economic growth, and inflation as well.

Inflation and unemployment have inverse relation, i.e., higher the unemployment , lower will be the inflation and vice-versa. This relation has been prevailing since ages. And it’s quite a simple theory, when people have employment and thus will  be earning hard currency and will have more disposable income. This higher disposable income leads to demand and higher demand make the prices climb up the graph along the demand line.

However, in a latest study conducted by Mikael Juselius and Elod Takats, it has been found that inflation is directly correlated with dependent and inversely related to working age population. Reason behind such relation stood as the dependent population increase, so does the consumption increases and saving rate decreases thus pushing the inflation to the new heights, Whereas on the other a rise in working age population puts a cap in the inflation.

However, looking at Indian economy, we see a different story here. Unlike developed economy , though the working age population is rising , but the rate of saving has been on the declining path instead of rising  and domestic consumption has definitely risen amid higher disposable income.

However in past few years active intervention by government of India and restrictive monetary policy by RBI has managed to take inflation under control. From double digit inflation rate to bringing it down to almost 4% is commendable job done by RBI  and GOI.

However, GOI doesn’t only have one challenge of inflation to fight. With increasing working age population GOI is also facing acute challenge of Job creation. Thus employment level in working population has fallen marginally to 94.4%  for the period of April- January 2018 from a year ago.

Working age population and employment rate among the respective category has largely been kept under wrap by policy maker. Employment rate and employability factor is one major aspect of any economy to grow. With India having advantage of higher working age population must take into account while formulating policy , to enjoy the benefit of large work force in taking the country ahead.

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Raj Nagarjuna
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Raj Nagarjuna
1 year 3 days ago

Inflation is a worrisome thing that all countries must be aware of. It drives not only the stock market but also other financial markets. Or even better.. the face of the economy of a country.

priyanka
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priyanka
1 year 2 days ago

your blog is really very informative

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