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Problem of Inflation in India

Problem of Inflation in India. Amandeep Verma. Contents Meaning of inflation Indian Scenario Indicators to measures Inflation Causes of Inflation Consequences of Inflation Present scenario in India.

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Problem of Inflation in India

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  1. Problem of Inflation in India AmandeepVerma

  2. ContentsMeaning of inflationIndian ScenarioIndicators to measures InflationCauses of InflationConsequences of InflationPresent scenario in India

  3. “Inflation is a persistent and appreciable rise in the general price level or averages of prices”Ackley

  4. “Inflation is always and everywhere a monetary phenomenon” Milton Friedman

  5. 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)

  6. 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

  7. 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

  8. Alternative indicators of Inflation in India In Percent SOURCE: RBI REPORT ON CURRENCY AND FINANCE 2003-04

  9. MONEY SUPPLY AND INFLATION Source: GOI ,Economic survey 2006-07

  10. Demand side • Increase in public expenditure • Deficit financing

  11. Supply side • Erratic agricultural growth • Hoarding • Inadequate rise in Industrial production

  12. Consequences of Inflation • Increase in economic inequalities • Obstacle to development • Adverse effects on the Balance of payments

  13. 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%)

  14. Fiscal policy • PDS (public distribution system) • Reduction in non developmental expenditure • Various tax incentives especially for exporters

  15. 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

  16. Thanks

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