Contemporary issues of indian economy

1. INFLATION AND ITS CURRENT
RELEVANCE IN
INDIAN ECONOMY
Gokarn Bahadur Karkee
Roll No: 13043

2. Objective
 To study the causes and effects of inflation in the
Indian economy and analyze its trends in the past few
years and current scenario.

3. What is Inflation
 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 demand of goods and
services is higher than the output of goods and
services.
 Inflation also occurs when the costs of producing
goods and services increases.

4. Causes of Inflation
 Demand-pull inflation
 Cost-push inflation
 Imported Inflation

5. Major reasons of Inflation in India
 Rise in Crude oil prices
 Rise in Food prices
 Black Money/ Hoarding
 Wage rate wise
 Sub Prime crisis

6. Measuring Inflation
 435 commodities are used for the WPI based inflation
calculation and base year for the WPI calculation is
1993-94 previously.
 Current series of WPI at base 2004-05 constitutes 676
commodities.
 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:

Formula for calculating Inflation=
(WPI in month of current year-WPI in same month of previous year)
-------------------------------------------------------------------------------------- X 100
WPI in same month of previous year

7. Contd…..
 CPI for Industrial Workers (CPI-IW) based on 2001
included 120-360 items,
 CPI for Agriculture Labourers (CPI-AL) and CPI for
Rural Labourers (CPI-RL) both with base year 1986-87
included 260 items.
 In addition, there is now the new series of CPI-(U+R)
based on the year 2010 for both rural and urban areas
and also combined has been introduced from January
2011 and includes 456 items.

8. Effects of 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

9. Curbing Inflation
 Strengthen local currency e.g. Indian Rupee
 The Reserve Bank of India (RBI) hikes the interest
rates and other policy rates to control inflation.
 Government uses the fiscal policy to check
inflation.

10. Inflation and GDP growth in the India

11. Trend of Rate of Inflation for some important items during last six months
Weight
(%)
Rate of Inflation for the last six months
Mar-13
Feb-13
Jan-13
Dec-12 Nov-12
Oct-12
ALL COMMODITIES
100.00
5.96
6.84
PRIMARY ARTICLES
Food Articles
Cereals
Rice
Wheat
Pulses
Vegetables
Potato
Onion
Fruits
Milk
Egg, Meat & Fish
Non-Food Articles
Fibres
Oil Seeds
Minerals
FUEL & POWER
Liquefied petroleum gas
Petrol
High speed diesel
MANUFACTURED PRODUCTS
Food Products
Sugar
Edible Oils
Beverages, Tobacco & Tobacco Product
Cotton Textiles
Man Made Textiles
Wood & Wood Products
Paper & Paper Products
Leather & Leather Products
Rubber & Plastic Products
Chemicals & Chemical Products
Non-Metallic Mineral Products
Cement & Lime
Basic Metals Alloys & Metal Product
Iron & Semis
Machinery & Machine Tools
Transport Equipment & Parts
20.12
14.34
3.37
1.79
1.12
0.72
1.74
0.20
0.18
2.11
3.24
2.41
4.26
0.88
1.78
1.52
14.91
0.91
1.09
4.67
64.97
9.97
1.74
3.04
1.76
2.61
2.21
0.59
2.03
0.84
2.99
12.02
2.56
1.39
10.75
1.56
8.93
5.21
7.60
8.73
18.36
17.90
19.87
10.51
-0.95
20.06
94.85
4.71
4.42
11.03
8.95
13.25
18.97
-0.39
10.18
25.66
5.12
21.22
4.07
7.01
9.41
2.40
5.82
5.24
5.91
5.28
5.50
1.97
3.57
4.53
6.01
5.40
0.92
-6.18
2.45
4.67
9.70
11.41
11.38
12.35
19.19
18.60
18.84
17.77
21.63
21.87
14.96
15.89
12.11
30.02
45.99
73.10
154.33
125.17
8.93
10.28
4.57
4.52
12.85
11.20
10.06
13.00
7.56
3.27
23.43
27.05
0.57
4.03
10.47
9.27
26.21
24.24
6.25
3.43
19.19
18.47
4.51
4.95
8.16
8.68
10.21
10.09
6.53
7.54
6.56
6.76
5.56
5.10
6.42
6.26
5.98
6.17
4.54
5.61
2.61
2.44
3.58
3.65
5.08
5.66
5.51
5.71
5.05
5.18
1.85
2.54
-3.53
-2.76
2.38
2.62
4.37
4.70
Source: www.rbi.org.in
Commodities/Major
Groups/Groups/Sub-Groups
7.31
7.31
7.24
7.32
10.56
10.63
19.08
17.10
22.63
16.25
14.36
58.03
72.79
4.84
6.15
12.66
13.56
0.69
30.02
5.57
10.25
19.01
3.43
14.60
5.04
8.74
9.84
9.20
7.14
4.89
5.55
6.90
4.08
2.66
3.51
5.86
4.10
2.23
3.18
-0.19
2.55
4.71
Date: 27th
9.56
8.80
17.84
15.28
23.25
18.77
-1.53
67.85
16.55
7.43
6.18
14.24
14.04
-1.34
30.60
6.88
9.97
4.01
1.48
14.60
5.41
9.25
15.48
9.76
8.13
5.46
4.36
5.98
3.47
2.50
3.30
6.27
4.75
4.73
4.45
4.32
2.63
4.39
Dec, 2013
7.81
6.72
16.28
14.97
19.78
19.86
-9.05
49.13
-9.12
3.43
6.35
13.10
11.43
-4.74
27.25
8.63
11.65
2.04
3.75
14.60
5.95
9.82
18.88
9.38
8.85
630
3.77
5.81
3.10
2.68
3.15
6.66
6.63
8.13
6.32
6.01
2.63
4.32

12. Major Highlights
 In 2010-11, 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 2011-12, 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.
 In 2012-13, high inflation is attributed to increased prices of
fruits and vegetables (due to increase in demand, hoarding
) and increase in commodity prices e.g. crude oil.

13. Inflation Control in India – 2013
Measures taken by Reserve Bank of India:
 Headline inflation in Nov, 2013 rise to 7.50%, 14
months high.
 Reserve Bank of India hiked key policy rates (repo
rate and reverse repo) by 25 basis points.

14. Steps taken by Government of India
 It targeted the limit of revenue Account deficit below 5
percent of GDP
 To increase industrial production, government liberalised
laws related to and reduced prices of necessary raw
materials and services.
 Too-grain is a factor, responsible for the rise of inflation in
India, to fulfill its demand, various measures like import of
wheat, oil seeds, opening market selling of India Food
Corporation's stock of wheat and rice, regulating process
etc. are taken in recent times.
 To check and curtail black market, laws have been made
stringent

15. Conclusion
 Inflation continues posing a threat
 Inflation has been caused by rapid growth in recent decade.
 Inflation has been caused by increased prices of vegetables
and fruits, and crude oils in recent years.
 Higher interest rates and other policy rates will lead to
reduction in inflation
 Challenges for Indian Economy in 2013
 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.

16. References:
 http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=203
 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_%28consum
er_prices%29.html