Economic Growth and Inflation : A Perspective

Abstract

In this paper, the author has tried to examine the relationship between inflation and growth, and if they are indeed the two sides of the same coin. The author has given a theoretical approach to begin with, by illustrating the theories of Adam Smith, Karl Marx & A.W. Phillips and their approaches towards inflation and how they fare in the current scenario. To substantiate his argument, the author has used the data from World Bank Reports and highlighted the inverse and direct relationship of inflation and growth in the short run. The author has mentioned the case of Asian Powerhouses like Singapore and South Korea & how they managed to have an impressive growth rate with a manageable inflation rate and how this negates the assumptions of A.W. Phillips. The author has also tried to throw some light on the reality of the growth story of India characterized by growing unemployment levels using data from NSSO to validate his point. A critical examination of the relationship of Inflation and business cycles has been done, and it was found that they have been a function of several other factors and not inflation necessarily. The author also analyzed the impact of government policies on inflation & since the nature of inflation has been of a 'cost push' one, it is difficult for any government to control it through monetary policy. The author finally concluded by attributing growth to be a function of numerous factors and ,therefore, we have to exercise caution while attributing inflation as a determinant of growth and all the while, we have favoured government intervention for growth of an economy.