##sposable income and standard of living. second, there is diminution of real value of savings as real interest rates turn negative and return on savings does not fully compensate for price rise. third, economic agents base their consumption and investment decisions on their current and expected future income as well as their expectations on future inflation rates. persistent high inflation alters inflationary expectations and apprehension arising from price uncertainty does lead to cut in spending by individuals and slowdown in investment by corporates which hurts economic growth in the long run. fourth, if the inflation rate is increasing faster than those in other countries then domestic products become less competitive which has adverse impact on growth, employment and the balance of payments. fifth, high inflation worsens inequality due to arbitrary redistribution of income where the poor suffer the most as the rich can hedge against inflation. for a detailed analysis of this, please see deepak mohanty ( 2010 ) : “ measures of inflation in india : issues and perspectives ”, speech delivered at the conference of indian association for research in national income and wealth at the centre for development studies ( cds ), thiruvanthapuram, on january 9. finally, the policy measures for reducing inflation have their externalities and associated costs in terms of reduction in aggregate demand in the short to medium run. inflation dynamics milton friedman famously said, “ inflation is always and everywhere a monetary phenomenon ”. 3 it is believed that short - run inflation dynamics is largely dependent on supply - demand conditions and monetary expansion influences inflationary condition in the long - run. monetary expansion could be caused by persistence of high fiscal deficit and the need to finance the same by monetisation. consequently, high monetary growth could lead to continued excess demand for a prolonged period without matching increase in output and productivity. on the other hand, supply conditions have strong influence on the inflation dynamics in the short run. in a rapidly growing developing economy like ours, both structural and idiosyncratic factors could play a significant role in the determination of inflation. in the recent years, the inward looking nature of indian economy has been changing. activities in almost all the sectors in varying degrees are influenced by global factors, be it trade in commodities, provision of services, financing conditions, or consumer taste. now domestic prices are more influenced by changes in global commodity prices for a wide range of goods – a sea change from the 1970s and 1980s when crude prices were major global influencing factors. taking into account the influence of global and domestic factors, the overall w

into higher global food prices as the import demand is large. hence, imports do not necessarily lead to domestic prices moving lower. one important determinant of prices of agricultural production in india has been the minimum support price ( msp ) announced by the government for procurement of various commodities. the high increase in msp since 2007 – 08 has given an upward bias to agricultural prices ( table 5 ). reduced availability of foodgrains also tends to keep food prices high. as per the economic survey 2009 – 10, per capita net availability per day of cereals and pulses has been lower than that observed in the previous four decades. the per capita daily availability of foodgrains was 447 grams in the 1960s and 1970s, which successively increased to 459 grams in the 1980s and 478 grams in the 1990s but came down to 446 grams during 2000 – 08 and stood still lower at 436 grams in 2008. severe drought in major parts of the country during the current year has perceptibly worsened food availability further. in particular, the situation is far more worrisome for pulses : its per capita net availability per day has gone down from around 60 – 70 grams during the 1950s to around 30 grams currently. on the demand side, a major economic transformation in india in the recent years has been the surge in rural demand which has now lower dependence on the farm sector. as per the national sample survey ( nss ) data, the share of rural consumption in overall consumption was about 58 per cent in 2006 – 07. the non - farm sector consumption accounts for about 55 – 60 per cent of the total rural consumption. while farm sector demand is more prone to the vagaries of weather, non - farm rural sector has imparted more stability in the recent years due to increased focus on the rural development, particularly through enhanced outlays under various public schemes. given the stage of our economic development, the demand for food items would increase with economic growth and rise in income levels. demographic dividend which has been contributing towards india ’ s growth and productivity, has also raised consumption demand, particularly on food. as per the united nations projection, high - consumption cohort in the age - group of 15 – 59 individuals comprising around 65 per cent of india ’ s total population will continue dominate demand till 2040. thus, lower per capita availability of foodgrains and structural shortage of key agricultural commodities like oilseeds and pulses combined with the rising demand have kept food price inflation