inflation and its current relevance

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Contemporary issues of indian economy

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inflation and its current relevance

  1. 1. INFLATION AND ITS CURRENT RELEVANCE IN INDIAN ECONOMY Gokarn Bahadur Karkee Roll No: 13043
  2. 2. Objective  To study the causes and effects of inflation in the Indian economy and analyze its trends in the past few years and current scenario.
  3. 3. What is Inflation  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 demand of goods and services is higher than the output of goods and services.  Inflation also occurs when the costs of producing goods and services increases.
  4. 4. Causes of Inflation  Demand-pull inflation  Cost-push inflation  Imported Inflation
  5. 5. Major reasons of Inflation in India  Rise in Crude oil prices  Rise in Food prices  Black Money/ Hoarding  Wage rate wise  Sub Prime crisis
  6. 6. Measuring Inflation  435 commodities are used for the WPI based inflation calculation and base year for the WPI calculation is 1993-94 previously.  Current series of WPI at base 2004-05 constitutes 676 commodities.  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:  Formula for calculating Inflation= (WPI in month of current year-WPI in same month of previous year) -------------------------------------------------------------------------------------- X 100 WPI in same month of previous year
  7. 7. Contd…..  CPI for Industrial Workers (CPI-IW) based on 2001 included 120-360 items,  CPI for Agriculture Labourers (CPI-AL) and CPI for Rural Labourers (CPI-RL) both with base year 1986-87 included 260 items.  In addition, there is now the new series of CPI-(U+R) based on the year 2010 for both rural and urban areas and also combined has been introduced from January 2011 and includes 456 items.
  8. 8. 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
  9. 9. Curbing Inflation  Strengthen local currency e.g. Indian Rupee  The Reserve Bank of India (RBI) hikes the interest rates and other policy rates to control inflation.  Government uses the fiscal policy to check inflation.
  10. 10. Inflation and GDP growth in the India
  11. 11. Trend of Rate of Inflation for some important items during last six months Weight (%) Rate of Inflation for the last six months Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 ALL COMMODITIES 100.00 5.96 6.84 PRIMARY ARTICLES Food Articles Cereals Rice Wheat Pulses Vegetables Potato Onion Fruits Milk Egg, Meat & Fish Non-Food Articles Fibres Oil Seeds Minerals FUEL & POWER Liquefied petroleum gas Petrol High speed diesel MANUFACTURED PRODUCTS Food Products Sugar Edible Oils Beverages, Tobacco & Tobacco Product Cotton Textiles Man Made Textiles Wood & Wood Products Paper & Paper Products Leather & Leather Products Rubber & Plastic Products Chemicals & Chemical Products Non-Metallic Mineral Products Cement & Lime Basic Metals Alloys & Metal Product Iron & Semis Machinery & Machine Tools Transport Equipment & Parts 20.12 14.34 3.37 1.79 1.12 0.72 1.74 0.20 0.18 2.11 3.24 2.41 4.26 0.88 1.78 1.52 14.91 0.91 1.09 4.67 64.97 9.97 1.74 3.04 1.76 2.61 2.21 0.59 2.03 0.84 2.99 12.02 2.56 1.39 10.75 1.56 8.93 5.21 7.60 8.73 18.36 17.90 19.87 10.51 -0.95 20.06 94.85 4.71 4.42 11.03 8.95 13.25 18.97 -0.39 10.18 25.66 5.12 21.22 4.07 7.01 9.41 2.40 5.82 5.24 5.91 5.28 5.50 1.97 3.57 4.53 6.01 5.40 0.92 -6.18 2.45 4.67 9.70 11.41 11.38 12.35 19.19 18.60 18.84 17.77 21.63 21.87 14.96 15.89 12.11 30.02 45.99 73.10 154.33 125.17 8.93 10.28 4.57 4.52 12.85 11.20 10.06 13.00 7.56 3.27 23.43 27.05 0.57 4.03 10.47 9.27 26.21 24.24 6.25 3.43 19.19 18.47 4.51 4.95 8.16 8.68 10.21 10.09 6.53 7.54 6.56 6.76 5.56 5.10 6.42 6.26 5.98 6.17 4.54 5.61 2.61 2.44 3.58 3.65 5.08 5.66 5.51 5.71 5.05 5.18 1.85 2.54 -3.53 -2.76 2.38 2.62 4.37 4.70 Source: www.rbi.org.in Commodities/Major Groups/Groups/Sub-Groups 7.31 7.31 7.24 7.32 10.56 10.63 19.08 17.10 22.63 16.25 14.36 58.03 72.79 4.84 6.15 12.66 13.56 0.69 30.02 5.57 10.25 19.01 3.43 14.60 5.04 8.74 9.84 9.20 7.14 4.89 5.55 6.90 4.08 2.66 3.51 5.86 4.10 2.23 3.18 -0.19 2.55 4.71 Date: 27th 9.56 8.80 17.84 15.28 23.25 18.77 -1.53 67.85 16.55 7.43 6.18 14.24 14.04 -1.34 30.60 6.88 9.97 4.01 1.48 14.60 5.41 9.25 15.48 9.76 8.13 5.46 4.36 5.98 3.47 2.50 3.30 6.27 4.75 4.73 4.45 4.32 2.63 4.39 Dec, 2013 7.81 6.72 16.28 14.97 19.78 19.86 -9.05 49.13 -9.12 3.43 6.35 13.10 11.43 -4.74 27.25 8.63 11.65 2.04 3.75 14.60 5.95 9.82 18.88 9.38 8.85 630 3.77 5.81 3.10 2.68 3.15 6.66 6.63 8.13 6.32 6.01 2.63 4.32
  12. 12. Major Highlights  In 2010-11, 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 2011-12, 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.  In 2012-13, high inflation is attributed to increased prices of fruits and vegetables (due to increase in demand, hoarding ) and increase in commodity prices e.g. crude oil.
  13. 13. Inflation Control in India – 2013 Measures taken by Reserve Bank of India:  Headline inflation in Nov, 2013 rise to 7.50%, 14 months high.  Reserve Bank of India hiked key policy rates (repo rate and reverse repo) by 25 basis points.
  14. 14. Steps taken by Government of India  It targeted the limit of revenue Account deficit below 5 percent of GDP  To increase industrial production, government liberalised laws related to and reduced prices of necessary raw materials and services.  Too-grain is a factor, responsible for the rise of inflation in India, to fulfill its demand, various measures like import of wheat, oil seeds, opening market selling of India Food Corporation's stock of wheat and rice, regulating process etc. are taken in recent times.  To check and curtail black market, laws have been made stringent
  15. 15. Conclusion  Inflation continues posing a threat  Inflation has been caused by rapid growth in recent decade.  Inflation has been caused by increased prices of vegetables and fruits, and crude oils in recent years.  Higher interest rates and other policy rates will lead to reduction in inflation  Challenges for Indian Economy in 2013  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.
  16. 16. References:  http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=203  http://www.worldjute.com/inflation.html  http://www.inflation.eu/inflation-rates/india/historic- inflation/cpi-inflation-india-2011.aspx  http://business.rediff.com/report/2010/mar/04/budget-2010- the-shocking-picture-of-inflation-in-india.htm  http://www.indexmundi.com/India/inflation_rate_%28consum er_prices%29.html

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