Inflation in india 2010

SUBMITTED BY :

SAMEER ARORA(09BS0002038)

VARUN VINAYAK(09BS0002656)

VIREN KOTHARI(09BS0002729)

ANUJA SHAH(09BS0002142)

SMITA GUPTA(09BS0002315)

SWATI JAIN(09BS0002506)

INFLATION

Sustained increase in the general level of prices for goods and services.

Measured as an annual percentage increase.

As inflation rises, the value of currency goes down. Thus the purchasing power of the currency, i.e. the goods and services that can be bought in a unit of currency, too goes down.

MEASUREMENT OF INFLATION

Wholesale Price Index

Consumer Price Index

Wholesale Price Index

WPI was first published in 1902

Used to measure the change in the average price level of goods traded in wholesale market

“Market Basket” of 435 commodities is tracked to find out the WPI

India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy

Calculated on Weekly basis

Consumer Price index

Adopted by developed countries in 1970’sUsed to measure the average price of goods

and services purchased by the consumer Is the official barometer of Inflation in

developed CountriesCalculated on Monthly Basis

Consumer Price Index

7

Weight edge to CPI & WPI

chart

Inflation Rate

PI for a certain year - PI for a comparative year X 100

PI for a comparative year *

Price Index of 2004-05 is considered as Base Year in India for WPI

CAUSES OF INFLATION

Cost Push

Inflation

Demand Pull

Inflation

Cost Push Inflation

Rising Labor Costs

Higher Indirect Taxes imposed by the govt.

Rise in Imported Raw Material

Ep1

E

E1

SS1

D

Cost Push Inflation

Demand Pull Inflation

• Faster Economic Growth in Other Countries

• Increase in growth rate of houses

• Rapid Growth of Money Supply

• Reduction in Direct/Indirect taxation

• Depreciation of Exchange Rate

Ep

Ep1

D

D1

S

Eq Eq1

Demand Pull Inflation

MEASURES TO CONTROL INFLATION

Monetary Measures

Fiscal Measures

Others

MONETARY MEASURES

Issue of CurrencyDemonetization

of CurrencyCredit Control

Bank rate

Open market operations

Reserve Ratios

Credit Rationing

FISCAL MEASURES

Increase in Public Borrowing/Debt

Reduction in Public expenditure

Increase in Public Revenue

Increase in TaxesSurplus Budget

Increase in Savings

OTHER MEASURES

Price control policy

Economic Planning

Population Planning

Increase in Supply of goods and services

Inflation Trend in India

FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

ALL COMMODITIES I PRIMARY ARTICLEII FUEL POWER LIGHT & LUBRICANTS III MANUFACTURED PRODUCTS

Inflation Trend in India

Food Articles & Crude Oil are the most volatile items of WPI to affect general price levels.

Monetary Measures by RBI :Repo at 5.5% & Reverse Repo at 4%CRR at 6%

Economic & Political Implications.

IMF projected the headline inflation in advanced economies at 1.3 per cent in 2010 and in emerging and developing economies at 6.2 per cent

High Rural Consumption (58% in FY 07)

FOOD INFLATION SCENARIO

Prices of Primary Food Articles rose 20% in Dec

‘09, highest in 11 years (E.g Price of Pulses)

Prices of Manufactured Food Products surged to

over 26%, fastest in 17 years.

Food inflation based on CPI(Industrial workers)

for April 2010 at over 13%

Rice, Wheat, Pulses, Vegetables, Potatoes,

Onions, Fruits, and Milk etc

Direct result of the triad of late monsoons,

drought and flood

Government’s handling of public distribution

system

Structural drivers in form of  implementation

of NREGA

Rapid growth in nominal disposable

incomes

EFFECTS OF INFLATION

Uncertainty about the future purchasing power of money discourages investment and saving.

They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term

EFFECTS OF INFLATION

Higher income tax rates.

Inflation rate in the economy is higher than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.

There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation.

Increase in the price of CNG

EXAMPLE

Increase in the price of wheat

Increase in the price of world oil

Increase in the price of rice

CURRENT TRENDS & FIGURES

CURRENT TRENDS & FIGURES

April May June Sept Mar-11

0

2

4

6

8

10

12

9.6 10.2 10.55 10

6.5

Recent Inflation Trend

Recent Inflation Trend

Forecast

RECENT INFLATION TREND & FORECAST

INFLATION TREND & ANALYSIS

IMPACT

High Disposable Income – A Cushion

Consumption – Disposable Income Ratio dropped by 20%

Higher Savings

Sufficient Income Growth – A Shield

Pressure on Food prices & Global Commodity Prices

Consumption Demand Could be dampened by continuous Inflation

Fuel Price Hike : Adding to Cost

SUGGESTIONS

Improved Public Distribution System

Decreasing Large numbers of intermediaries in Agriculture Supply Chain & The Margins

Continuous Increase in the minimum support price to farmers.

Increased Employment Opportunities

Monetary Tightening Required – Not frequently : Could Derail the Growth Momentum

Increased Reverse Repo Rate

Increased Repo Rate

SUGGESTIONS

Looking at the liquidity position : A Gradual Hike in CRR

Control Social Unrest – Can lead to Output Loss

Slowdown in Global Growth – Help Control Manufactured articles Inflation