This document discusses inflation in the Indian economy. It defines inflation as a rise in the general price level and a fall in the purchasing power of money. There are two main types of inflation - demand-pull inflation, which occurs when demand exceeds supply, and cost-push inflation, which is caused by increased production costs. The consequences of inflation include uncertainty, reduced savings and investment, and income redistribution. To control inflation, the government uses fiscal measures like taxes, monetary measures like interest rates, and general measures like wage and price controls. Empirical data shows India's inflation rate was 5.96% in March 2013 according to the wholesale price index.

1. INFLATION
Meaning, Measures and Impact on Indian Economy
By
Surajit Basak
Sananda Dasgupta
Sangeeta Nandi
Suvajit Das
Sougata Dhar
Bandel Bholanath Ghosh
Institute Of Engineering & Management
PGDM 1ST YEAR
By PresenterMedia.com

2. INFLATION: Meaning
In a broad sense, inflation is that state in which the
prices of goods and services rise on the one hand and
value of money falls on the other
When money circulation exceeds the production of
goods and services, then inflation takes place in the
economy

3. Features of Inflation
It is a continuous process.
It refers to a rise in prices in general.
It involves a considerable increase in prices.
It causes a decline in the purchasing power of
money.

4. Types of Inflation
1.
2.
Demand Pull Inflation
Cost Push Inflation

5. Demand Pull Inflation

The demand for goods and services increases and production
remains the same or does not increase as fast. The excess demand
results in prices being “pulled up”.

Demand pull inflation occurs when total demand for goods and
services exceeds the total supply.

This type of inflation happens when there is an inflationary gap

6. Demand Pull Inflation
Price $
Aggregate Supply
P2
Aggregate Demand 2
P1
Aggregate Demand 1
Q1
Q2
6
Real GDP ($)

7. Cost Push Inflation
Caused by an increase in the cost of
production. Increased costs “push up” the price
level.
 Cost push inflation can result from change in
aggregate supply.
 The two main sources of change in aggregate
supply are increase in wage rate and price of
raw material.


8. Cost Push Inflation
Price $
Aggregate Supply 2
Aggregate Supply 1
P2
P1
Aggregate Demand
Q2
Q1
8
Real GDP ($)

9. Consequences of inflation
Inflation impacts negatively on economic growth.
Inflation brings about uncertainty in the economy.
Savings and investment are discouraged.
Inflation affects the distribution of income.
Redistributes income from people with fixed incomes to
those with flexible incomes.
Redistributes income from private individuals to the
government.

10. Consequences of inflation




Causes fiscal drag and bracket creep: salary increases
move people into higher tax brackets and they could
be effectively worse off.
Inflation has an adverse effect on a country’s balance
of payments.
If India’s rate of inflation is higher than that of our
trading partners the result is a loss of international
competitiveness.
Inflation can cause a decrease in the real money
value of savings.

11. Measures to control Inflation
Fiscal Measures
Monetary Measures
General Measures

12. Fiscal measures
Increase direct taxes.
Increase indirect taxes.
Reduce government spending.
Introduce measures to increase productivity, e.g.
tax rebates

13. Monetary measures
Increase interest rates of banks.
Decrease money supply.
Decrease availability of credit from banks.
Decrease currency control.

14. General Measures








Increase productivity.
Freeze prices and wages.
Implement a wage restraint policy.
Encourage personal savings.
Implement control measures for consumer credit.
Import control: make competing imported goods
cheaper.
Introduce price indexation: linking all prices to a
particular index, e.g. CPI.
Inflation targeting.

15. Empirical evidence of Inflation rate in India

16. The inflation rate in India was recorded at 5.96
percent in March of 2013,which is reported by the
Ministry of Commerce and Industry
In India, the wholesale price index (WPI) is the
main measure of inflation.
The WPI measures the price of a representative
basket of wholesale goods.

17. In India, wholesale price index is divided into
three groups: Primary Articles (20.1 percent of
total weight), Fuel and Power (14.9 percent) and
Manufactured Products (65 percent).

18. THANK YOU