Question

Q. Which of the following factors may lead to higher imported inflation in India?

Select the correct code from the options given below:

• A. 1 and 2 only
• B. 2 and 3 only
• C. 1 and 3 only
• D. 1, 2 and 3

Answer 1

The correct option is A 1 and 2 only

Explanation:

• Imported inflation: When the general price level rises in a country because of the rise in prices of imported commodities such as crude and gold (in the case of India), inflation is termed as imported. Hence, statement 1 is correct.
• Statement 2 is correct. Inflation may also rise because of the depreciation of the domestic currency. For example, if the rupee depreciates by 10% against the US dollar in a particular period, the landed rupee cost of oil will also go up by the same proportion and will affect the price levels and inflation readings.
• Statement 3 is incorrect. Low priced export from China to India will reduce the prices of commodities in India. This reduces inflation and hence, imported inflation will be lower.