In November 11, 2006 when India's inflation reached 5.29 percent, economists termed it as 'ugly surprise'. Since then it is not so a long time and the nation's inflation has hit a seven-year high of 8.75 percent for the week ended May 31, 2008. The last higher figure was of 8.77 percent for the week ended Feb 10, 2001.

With this alarming inflation rate which is inching closer towards the double digit level, policy makers are facing a nettlesome situation, the business community in the country feeling jittery, and the common man watching in awe and fear. But is it really such a big issue!

History suggests that inflation is no stranger to our economy. While the highest inflation rate the country has ever witnessed was 53.8 percent in the famine year of 1943, Indians used to double-digit inflation till the early nineties. But their are many other Asian countries which did far worse than India- China' inflation, for example, reached  1,579% in 1947 while a civil war was raging there, and  Japanese inflation peaked at 568% in 1945 after the country's defeat and economic collapse. South Korea also faced a similar situation when its inflation reached 210 percent  in 1951, the year when the country was at war with the communist North.

But the time is different now and the situation has changed significantly as well. All the aforesaid countries faced worrisome inflation rate at times of political unrest, war or famine. In India, inflation was primarily caused in the early nineties due to domestic causes, especially when supply was unable to meet demand. In contrast, the recent inflation is primarily global rather than domestic, and it has occurred not due to supply-demand gap at the domestic market nor because of war or political instability. In other words, the recent inflation is 'imported' as some economists have termed it. And needles to say, the policy makers must coin new tactics to tackle this new challenge.
 
Whether because India is blessed with conservative policymakers or it is because the country's policymakers know that politically inflation may have great significance, India has always been successful to a great extent in taming inflation. But this time things seem different; In the last month, Finance Minister P.A. Chidambaram admitted that 'these are difficult times' due to the rise in prices of lubricants and manufactured products while a senior economist at the Centre for Development Studies in Thiruvananthapuram commented that the rising inflation was because of the lower food stock at the global level.

The rise in inflation has led to steep rises in prices of essential food items and commodities, and it has become a matter of great concern to the government. Last month when India's inflation touched 7.57 percent (for the week ended April 19), Prime Minister Manmohan Singh himself held several meetings with his key cabinet colleagues on the impending hike in fuel prices and assured, "We have taken several measures (to contain the inflation). It will take some time". In the next weak, inflation climbed to 42-month high of 7.61 percent, and in June4, 2008, the UPA government had to hike the fuel prices. The PM justified the decision as 'unavoidable' due to upward increase in the prices of fuel products in the international market.

Thus, things has become much more critical now than ever before, and the harsh truth is that the inflation rate has touched 8.75 percent (for the week ended May 31, 2008) despite government's promises and opposition's hue and cry. Experts have even commented that inflation will soon touch the double digit mark.

Another important thing here to note is that this official data on inflation rate and growth of price indices reflect less than actual. Firstly, it is because the week-ending figures of inflation may not be able to capture price rise with respect to some commodities within the time limit. The revised figures which would actually reflect inflation, generally come out after two months.

Secondly, when inflationary growth is counted, a number of essential expenditure like insurance, transport, telecommunication services, etc. are not taken into account. If prices of such essential public goods are taken into account, then the inflation figures will be higher.

And finally, India's staggering quantum of subsidy, particularly in the petroleum and petro-products sector, helps conceal the actual inflation figure. India's current amount of subsidy running at more than Rs 200,000 crore, and therefore, it is sure and certain that the real quantum of the country's inflation is not just 8.75 percent as official figures tell. It has probably crossed the double digit mark, and that is certainly a big issue.