Inflation and its trends in indian economyPresentation Transcript
Team Members : Abhishek Saxena (BLP012) Nihar Routray (BLP022) Abhishek Kumar (BLP038) Shankar Narayan (BLP039) Kushal Prakash (BLP061)
To study the causes and effects of inflation in the Indian economy and analyze its trends in the past few years. Objective
Inflation can be defined as a rise in the general price level and therefore a fall in the value of money. Inflation occurs when the amount of buying power is higher than the output of goods and services. Inflation also occurs when the amount of money exceeds the amount of goods and services available. What is Inflation
Types of Inflation
Demand-pull inflation Cost-push inflation Imported Inflation Causes of Inflation
Rise in Crude oil prices Rise in Food prices Black Money GDP Wage rate wise Sub Prime crisis Major reasons of Inflation in India
435 commodities are used for the WPI based inflation calculation and base year for the WPI calculation is 1993-94. WPI is available at the end of every week (generally Saturdays), for a period of one year ended that day The wholesale price index comprises of the following indices: Domestic Wholesale Price Index (DWPI) Export Price Index (EPI) Import Price Index (IPI) Overall Wholesale Price Index (OWPI) Measuring Inflation
Effects of Inflation Hoarding Increased risk Fixed income recipients Increased consumption ratio Lowers national saving Illusions of making profits Rising prices of imports Causes business cycles to go out of business
Curbing Inflation Strengthen local currency e.g. Indian Rupee The Reserve Bank of India (RBI) hikes the interest rates to control inflation. Government uses the fiscal policy to check inflation. Government to choose alternative of direct intervention Reforming long term labor related policies
Inflation in the India Growth Story
Major Highlights In 2009-10, increase in inflation was due to factors like food inflation hike. (Supply shortage of cereals, pulses, wheat, and rice due to drought in country) In 2010-11, high inflation is attributed to increased prices of fruits and vegetables (due to increase in demand) and increase in commodity prices e.g. crude oil.
Measures taken by Reserve Bank of India: Headline inflation in May, 2011 rise to 8.72 %. Reserve Bank of India hiked key policy rates (repo rate and reverse repo) by 25 basis points. Inflation Control in India – 2011
Conclusion Inflation continues posing a threat Inflation has been caused by rapid growth Fall in oil prices and higher interest rates will lead to reduction in inflation Challenges for Indian Economy in 2011
Getting inflation under control
Spreading the growth benefits more equitably.
Completing investment projects that are essential for the long term development of economy.
Dealing with global financial uncertainty that will make the capital flows and exports more difficult.