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Presentation on managing inflation


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Presentation on managing inflation

  1. 1. PRESENTATION <br />ON <br />UNION BUDGET AND MANAGING INFLATION<br />By:<br />ShivaniKakria<br />MeghnaMahajan<br />AnshitaKashyap<br />KhushbooChauhan<br />Sandeepkaur<br />
  2. 2. Meaning<br />Inflation means a persistent increase in the level of consumers prices or a persistent decline in the<br />purchasing power of money, caused by an increase <br />in available currency and credit beyond the proportion of available goods and services. <br />
  3. 3. Introduction to budget 2011-2012<br />Budget has tried to bring transparency in all the sectors of economy .<br /> Along with this the our finance minister has thrown light on inflation rate of our country <br />Budget aimed at achieving fast paced recovery with the GDP which was 8.5% in 2010-2011 while breaching the 9% mark in FY2012.<br />
  4. 4. TYPESOF INFLATION<br /><ul><li>Hyper inflation
  5. 5. Extremely high inflation
  6. 6. Moderate inflation
  7. 7. Low Inflation</li></li></ul><li>
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  9. 9. Causes of inflation<br /><ul><li>DEMAND PULL INFLATION
  10. 10. COST PUSH INFLATION</li></li></ul><li>Demand pull and cost push inflation<br />Demand Pull : Increase in the aggregate demand for goods and services<br />Cost Push : a. an increase in wages<br />b. an increase in the profit margin<br />
  11. 11. Demand side factors<br />Rise in Public expenditure<br /> - expenditure incurred by govt.<br /> - Aggregate demand is greater than aggregate supply <br /> -India’s PE IN 2011-2012:-12,57,729cr which is increased by 13.4% to estimated PE in 2010-2011.<br />
  12. 12. CAUSES<br />Deficit financing<br /> - Expenditure is more than Income.<br /> - India’s deficit financing in 2011- 4.6% of GDP Which is less than as compared to last year 5.5%<br /> - The fiscal deficit situation had become manageable in the current fiscal year due to the successful 3G spectrum auction, divestment and strong GDP growth leading to buoyant tax revenues.<br />
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  14. 14. Increase in Money supply<br />Irving fisher’s quantity of money<br /> explains-<br /> “Increase in money supply with <br /> proportionate increase in output <br /> lead to rise in PRICE and fall in <br /> money VALUE”<br />
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  17. 17. BLACK MARKET & CORRUPTION<br /> It is unearned income by <br />public servants .<br /> Excess demand lead to inflation <br />Acc. To Transparency International for corruption .<br />India ranks 74 <br />
  18. 18. OTHER FACTORS<br />Growth in population <br />Growth in private expenditure <br />Increase in Export<br />Money reduction in direct taxes<br />
  19. 19. SUPPLY SIDE FACTORS CAUSING INFLATION<br />Industrial disputes<br />Natural calamities<br />Artificial scarcity<br />Increase in export<br />
  20. 20. Impact high oil price (Petrol prices increased by 23.14%)<br />Fuel and power(increased by 9.48%)<br />Fluctuating agricultural growth.<br />Food inflation(9.52%)<br />.<br />
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  25. 25. Effects Of Inflation<br />
  26. 26. Effects of inflation<br /><ul><li>Inflationary noise
  27. 27. Effect on economic growth
  28. 28. Effect on consumption and economic welfare</li></li></ul><li>EFFECTS OF INFLATION<br />
  29. 29. NEGATIVE EFFECTS<br />Decrease in real value of money<br />Discourage investment and savings<br />May lead to shortage of goods due to HOARDING<br />Rise in poverty<br />Less return to investors<br />Illusions of making profits by the businessmen<br />Rising prices of imports due to currency debasement<br />Fixed income recipients will be hurt<br />
  30. 30. POSITIVE EFFECTS<br />It will benefit the business cartels <br /> Inflation  Currency Devaluation  Better Margins for Exporters<br /> “Economists favor a low steady rate of inflation, low (as opposed to zero or negative) because they relate inflation directly with growth of economy.”<br /> - PranabMukherjee<br />
  31. 31. MethodstoMeasure Inflation.<br />Consumer Price Index (CPI)<br />Wholesale Price Index (WPI)<br />
  32. 32. Current CPI/WPI – Last Calculated CPI/WPI<br />Last Calculated CPI/WPI<br />Inflation<br />Rate<br />100<br />=<br /> 150 - 140 <br /> 140<br />Inflation<br />Rate<br />=7.12%<br />=<br />100<br />
  34. 34. MONETARY MEASURES<br />Most significant way to control inflation is to reduce the liquidity in the economy.<br />Tools of controlling liquidity are:<br /><ul><li>Cash Reserve Ratio (CRR)
  35. 35. Bank Rate
  36. 36. Repo Rate
  37. 37. Reverse Repo Rate
  38. 38. Statutory Liquidity Ratio (SLR)</li></li></ul><li>
  39. 39. INFLATION vis-à-vis Economic Rates<br />Source: International Monetary Fund- World Economic Outlook,<br />
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  43. 43. Service tax increased by Rs1000 per day on hotel Accomodation.<br /><ul><li> Service tax on air travelling increased by Rs50 on general level.
  44. 44. Rs 250 on economic class
  45. 45. 10% flat on higher class.</li></li></ul><li>
  46. 46. RELIEF TO THE COMMON MAN :<br /><ul><li> Reduction in excise duty on petrol and diesel.
  47. 47. Decrease in transportation costs that are intrinsically built into the price of every product that we use.
  48. 48. In health area include a hike in the deduction limit for health insurance. An increase in the limit will help in widening the base and increasing the penetration of health insurance among the masses.</li></ul> TO INVESTOR<br />
  49. 49. EFFECT OF INFLATION ON DIFFERENT SECTORS IN BUDGET 2011:<br />AVIATION SECTOR : Due to the introduction of service tax on domestic and international tickets.<br />Other challenge for this sector is rising fuel prices and shortage of manpower.<br />HOSPITALITY :Due to the introduction of service tax on hotel accomodation .<br />TEXTILE INDUSTRY :mandatory excise on branded garments which will give the negative effect.<br />HEALTH : This area includes health checkups and private hospitals become expensive. <br />
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  51. 51. Thank you<br />