Pranabmukherhee---Finance minister PranabMukherjee has said inflation is a price to pay for rapid growth. There are suggestions in the government of a “new normal” of inflation running at 6 to 8 percent, from the roughly 5 percent considered acceptable by policymakers in recent years.
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 />
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 />
Causes of inflation<br /><ul><li>DEMAND PULL INFLATION
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 />
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 />
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 />
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 />
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 />
OTHER FACTORS<br />Growth in population <br />Growth in private expenditure <br />Increase in Export<br />Money reduction in direct taxes<br />
SUPPLY SIDE FACTORS CAUSING INFLATION<br />Industrial disputes<br />Natural calamities<br />Artificial scarcity<br />Increase in export<br />
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 />
Effect on consumption and economic welfare</li></li></ul><li>EFFECTS OF INFLATION<br />
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 />
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 />
MethodstoMeasure Inflation.<br />Consumer Price Index (CPI)<br />Wholesale Price Index (WPI)<br />
RELIEF TO THE COMMON MAN :<br /><ul><li> Reduction in excise duty on petrol and diesel.
Decrease in transportation costs that are intrinsically built into the price of every product that we use.
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 />
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 />