Transcript Problem of Inflation in India

Problem of Inflation in
India
By
Kamal Singh
Contents
Meaning of inflation
Indian Scenario
Indicators to measures Inflation
Causes of Inflation
Consequences of Inflation
Present scenario in India
“Inflation is a persistent and
appreciable rise in the general
price level or averages of prices”
Ackley
“Inflation is always and
everywhere a monetary
phenomenon”
Milton Friedman
Indian scenario
• Price stability is viewed as a necessary condition
to ensure the desired development performance
of the economy
• The variations in the price level in India are
usually measured in terms of the wholesale
price index (WPI), Gross domestic product
deflator( GDPD) and Consumer price index for
industrial workers (CPI-IW)
Different indicators
• WPI = It is computed for all commodities and for
major groups and sub groups of commodities. It
is computed on weekly basis. Services and non
taxable commodities are not included .
• GDPD= Derived from national income,
services included ,coverage more than WPI
• CPI-IW=It measures inflation in terms of cost of
living condition of industrial workers, changes in
retail prices of goods and services consumed by
industrial workers
In whole of the planning starting
from 1950-51 till now, it was only
during the First plan period that
general price level recorded a fall
Alternative indicators of Inflation in
India
In Percent
`Period
WPI
CPI
GDPD
1970-2004 8
8.2
7.8
1970-80
9
7.7
7.7
1980-90
8
9
8.7
9.5
8.7
1990-2000 8.1
SOURCE: RBI REPORT ON CURRENCY AND FINANCE 2003-04
MONEY SUPPLY AND INFLATION
Period
Increase in
Growth in
Money
NNP (%)
supply(%)
Broad money
Annual
average WPI
inflation (%)
1996-97 to 16.99
2000-01
5.4
5.1
2001-02 to 16.18
2005-06
7.2
4.1
Source: GOI ,Economic survey 2006-07
Factors affecting prices
Demand side
Supply side
Demand side
• Increase in public expenditure
• Deficit financing
Supply side
• Erratic agricultural growth
• Hoarding
• Inadequate rise in Industrial production
Consequences of Inflation
• Increase in economic inequalities
• Obstacle to development
• Adverse effects on the Balance of
payments
Anti –Inflationary policy of the
government
• Monetary policy
For about three decades from 1962 to
1991 RBI had employed both quantitative
and qualitative measures
• On recommendation of Narasimham
committee CRR and SLR were reduced
(SLR 25%)
Fiscal policy
• PDS (public distribution system)
• Reduction in non developmental
expenditure
• Various tax incentives especially for
exporters
Present scenario
• During the past month prices has been rising
very steeply and it is serious concern for
government
• FM call it is as “Imported Inflation”%%
• Increase in food prices, oil prices ,USA
recession are some of the reasons behind
inflation
• CRR was increased from 7.5 to 8 %
• Much more needed esp. supply side to control
this situation
Thanks