Team Members : Abhishek Saxena (BLP012) Nihar Routray (BLP022) Abhishek Kumar (BLP038) Shankar Narayan (BLP039) Kushal Prakash (BLP061)

INFLATION AND ITS TRENDS IN INDIAN ECONOMY

Inflation…???

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

Creeping inflation

Trotting inflation

Galloping inflation

Hyper 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

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

Effects of 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

Curbing Inflation

Inflation in the India Growth Story

YearInflation rate (max. consumer prices)

Percent Change

Date of Information

2003 5.40% 2002 est.

2004 3.80% -29.63% 2003 est.

2005 4.20% 10.53% 2004 est.

2006 4.20% 0.00% 2005 est.

2007 5.30% 26.19% 2006 est.

2008 6.40% 20.75% 2007 est.

2009 8.30% 29.69% 2008 est.

2010 10.90% 31.33% 2009 est.

2011 11.70% 7.34% 2010 est.

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.

Major Highlights

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

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.

Conclusion

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_%28consumer_prices%29.html

References:

Q & A