ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Inflationary Implications of Resource Mobilisation through Administered Price Increases

This paper discusses a crucial aspect of the strategy of mobilising resources for financing the Seventh Plan, namely, the inflationary implications of administered price increases. The authors' analysis shows that the contribution of administered price increases to past inflation has been considerably greater than what was suggested in the discussion paper on administered prices prepared by the Finance Ministry ft a high rate of inflation, then, a price which the government must pay for following the Seventh Plan's financing strategy? Not necessarily for there are, the authors find, a number of major administered prices which could be raised substantially without triggering much extra inflation. The prices of a range of public sector products, such as coal and lignite, fertilisers, non-ferrous metals and rail transport services, fall in this category A policy of judiciously selected administered price increases would, therefore, go a long way in closing the Seventh Plan resource gap without generating very high rates of inflation.

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