...INDIA INFLATION SLOWS TO LOWEST LEVEL IN MORE THAN 2 YEARS Yearly prices of food decreased 0.52% in January from a 0.74% rise in December, it happen because helped by supplies of vegetables increased. Nevertheless, price of protein-rich food items stood high. Due to the food prices fallen, central bank have to cut rates in order to prevent economic slowdown. The slow inflation growth had become good news as according to Indian policymakers where they had been struggled for high prices in the past two years. In fact, the India’s economic suffer the slowest growth for the past three years. As it was expected from the Reserve Bank of India (RBI), the economy had been stimulated in which RBI begins to cut the interest rate on the first quarter of April 1st. Furthermore, in year 2012, the economists forecast that RBI would cuts the policy rate from 100 basis points up to 50 basis points for the next quarter April to June. There was a decreased in the India’s federal bond yield from 8.79 percent to 8.18 percent for the 2012 bond yield. Besides, the prices of the food had decreased up to 0.52 percent from 0.74 percent. It happens because of the increased in the supplies of vegetables. On the other hand, the prices of the protein food like fish, meat, milk, and eggs still expensive in which it was argued to become the problems. The other area like petrol prices remains constant due to the political considerations that government adjusts...
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...Inflation in India: Docile or Defiant? Executive Summary ASSOCHAM study finds that inflation was structural in nature rather than being episodic. Farm prices are less responsive to the RBI’s monetary policy whereas manufactured goods prices were found to be more responsive to the policy. Manufactured goods prices are showing new dynamics: a) Highest price rise in primary and upstream products b) A moderate rise in intermediate goods prices c) Least hikes in prices of finished and consumer products In the light of these features and trends in inflation, ASSOCHAM suggests four pronged anti-inflationary package. These includes Structural Correction for Structural Inflation: This calls for a comprehensive action plan for the farm sector, involving among other measures, a programme for a “Horticultural revolution” for increasing productivity of fruits and vegetables, fish and poultry. Controlling form inflation is a joint responsibility of the union Government and RBI. Only monetary policy adjustment will not correct such trend price rises. 2 Hence, RBI need not raise policy rates every time form prices are rising, as analysis shows farm price are not responding to monetary policy changes. Manufactured good inflation is showing for greater responsiveness to monetary policy changes. RBI should concentrate more on controlling these prices Going into the disaggregated and Sectoral price behavior of manufacturing goods, we find the dynamics of change is more in upstream...
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...Is Inflation in India Structural or Monetary? Inflationary Situation: It’s a situation in the economy where ‘too much money is chasing too few goods’. So when the products & services available are less as compared to the money supply in the money market, the economy witnesses an uptrend in their prices in order to adjust for the larger quantum of money chasing them. Structural Policy: A Structural policy is a term used for the whole of the politico-economic measures for the organization of the structure of the national economy of a state. A Structural policy is further categorized as * Regional structural policy, which supports the settlement of industries in assisted areas by measures of the investment assistance * Sparkling wine-oral structural policy, those by subsidies and tax preferences Monetary Policy: It refers to the process by which a country’s central bank controls money supply, often through the manipulation of interest rates, with the aim of promoting economic growth and stability while maintaining relatively stable prices and low unemployment. Monetary policy is either expansionary (mainly by lowering interest rates to combat a recession or a recessionary situation) or contractionary (raising interest rates to control inflation). Comment: Inflation in India is primarily structural and less monetary in outlook. Some data points supporting this point of view are as below: * Food Inflation – As it has been seen historically, the dietary patterns...
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...The inflation targeting policy is mainly decided by RBI and Government targeted at “Inflation target” by mainly controlling the interest rates. A control over the Interest rates helps curbing the inflation in the long run. Inflation acts as a deflator in GDP thus it needs to be kept under a certain range. To spur up the GDP to the targeted levels we need to lower the interest rates so as to increase the economic activity and boosting the health of the economy. But doing that at the same time would lead to increase in consumer spending thus increasing the inflation. Thus there arises a seeming tradeoff between growth and inflation. In the current scenario of our country there are various factors that would suggest that this policy must be adopted. Inflation has been one of the major reason for the decline in the GDP Growth of our country since 2011. And inflation rate in India has been floating around 12-14% till 2012 which is significantly high as compared to the healthy rate of 2-5%. Looking at the current reforms in the country, the lowering of the crude oil prices and boom in the world economy indicates that economic growth is already on the rise. The same is indicated by the BSE and BSE Sensex markers. Various sectors such as infrastructure are already being supported by the government and recent policies to attract more FDI will help in reaching the targeted GDP growth rates. This would also mean that there will be a rise in overall employment and per capita spending...
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...(Roll – 232) | GROUP ASSIGNMENT CORRELATION BETWEEN GROWTH AND INFLATION WITH SPECIAL REFERENCE TO INDIA & CHINA One of the most fundamental and central macroeconomic policy objectives of the governments, central bankers and economists has been to sustain high growth rate with low inflation. The influences of other macroeconomic variables like aggregate demand, unemployment and investment and that of factors like human and natural capital and technology on economic growth are well-established. But when it comes to the inter-relationship between inflation and economic growth, there are divergences in opinion, more so because of lack of any linearity in the two variables. Introduction Theoretically, it is argued that when growth is caused by rising aggregate demand at low level of unemployment, it would lead to inflationary tendencies. This is because when demand aggregate outstrips the available supply, the disequilibrium would push the prices up. Low and declining unemployment level means wages would also rise and thus price rise caused by demand pull will also bring in the cost push factors to sustain the inflationary conditions. Inflationary tendencies can be thwarted when the aggregate demand pulls are matched by increased productivity and investment. But in the times of inflationary expectations, the investment slackens as the future prospects of earnings deteriorate and thus the inflation continues to spiral. Short- run Philips Curve do give a fair explanation...
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...Indian and Chinese policies to tackle inflation Abstract: India and china the two Asian giant, have shown economic growth in last few decades. The expansion of the economy brought high inflation in both countries. Inflation impacts all types of the consumers while rich or poor, it will become a real problem if the countries didn’t adopt policies to decrease the inflation rate. India and china have a very fast economic growth with fast population. The government and the central bank have to work beside to curb the inflation using two main policies are monetary policy and fiscal policy. In the monetary policy the central bank has to manage the many supply in the market and also control and decline the inflation, in terms of fiscal policy the government try to see the tax level to impact in the inflation rate. Monetary policy has more effect than fiscal policy, but also there are challenges implementations of the policies. Argument 1(monetary policy) India has faced a hyperinflation in years 2009 to 2011 to unprecedented level. The inflation in India affects the saving of the Indian household which decreased the value of saving in that nation. The monetary authorities are trying to impact the money supply directly without creating deformation in the economy by changes CRR (cash reserve ratio), repo and reverse repo rate. The main objective is to maintain price stability. The RBI (reserve bank of India) trying to control the money supply by using which called contractionary...
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...A Study of Impact of RBI policy rates on inflation *Prof. Pallavi Ingale Introduction The Reserve Bank of India (RBI) is the Indian central bank. The RBI’s most important goal is to maintain monetary stability - moderate and stable inflation in India. The RBI uses monetary policy to maintain price stability and an adequate flow of credit. Rates which the Indian central bank uses for this are the bank rate, repo rate, reverse repo rate and the cash reserve ratio. The Reserve Bank of India (RBI) raised repo and reverse repo rates 13 times in previous year. RBI also deregulated savings bank deposit rate with immediate effect. This step was taken to arrest rising inflation in Asia's third largest economy. But this RBI's decision to hike short-term lending and borrowing rates could lead to higher interest rates and impact the growth momentum of the economy. An Indian company has postponed expansion plans and review future profitability projections after the Reserve Bank of India raised key interest rates. The central bank also revised the GDP growth rate for FY11-12 to 7.6% from the earlier 8%, while the projection of WPI inflation has been kept unchanged at 7% for March 2012. Reserve Bank of India (RBI) The Reserve Bank of India was inaugurated as on April 1 1935. Originally, the Reserve Bank was constituted as a shareholders’ bank based on the model leading foreign central banks on that time. The bank ‘s fully paid share capital was Rs. 5 Crores divided into shares of Rs. 100 each...
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...Semester SOMTU July 18, 2013 ABSTRACT: The rate of inflation- the percentage change in the overall level of prices- varies grately across time and cross country. The objective of this paper is to analyze the consumer price inflation in South Asian Countries from 2002 to 2010. The annual percentage change in CPI and Average Annual Growth Rate in Consumer Price Indices are analyzed to examine the trend of inflation in South Asian Countries like Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan & Sri Lanka. India has average inflation of 5% but Sri Lanka is the hardest hit by the inflation among South Asian countries. Bhutan has very low rate of inflation and Maldives has rising trend of inflation. The inflation rates are co-related with the growth rate of gross domestic product and money supply of South Asian Countries. There is positive co-relation between the rate of inflation and rate of changed in GDP at constant prices in Bangladesh, India, Pakistan, and Sri Lanka but negative correlation in Nepal. There is negative co-relation between rate of inflation and changes in money supply in Bangladesh, Nepal and Pakistan but positive co-relation in Nepal and Sri Lanka. In Pakistan the consumer price inflation is mainly due to oil price hike and food inflation. So the inflation scenario in South Asia is adverse to economic development as it is above 5% in most of the countries. INTRODUCTION: Inflation is a global phenomenon and significant macroeconomic variable...
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...Indian Economy Executive Summary The Indian Economy is currently experiencing strong growth adverse to difficulties witnessed after the global financial crisis. Current GDP levels at approximately $1.5 US Dollars as the fifth largest economy in the world. The aim of this paper is to address macroeconomic conditions that may affect India’s ability to maintain high levels of growth. Monetary and Fiscal policy have been analysed and recommendations made to manage inflation, employment and debt. Tax increases on higher earners and other possible consumption taxes would slow aggregate demand but allow government to increase its spending. Inflationary pressures are as a result of the economy not being able to meet supply requirements and investment in agricultural practise and increase in the manufacturing sector should assist in reducing inflation which is 11.7%. This will also have positive effects on employment which will allow India to reach higher levels of GDP in the long term. Other areas of long term planning will be for improved and widespread access to education and move people into the services sector which currently employs only 34% of people compared with 52% in agriculture and 14% in manufacturing. In the short term the migration of workers from agriculture into manufacturing is a possibility. Diversion of higher taxes to reduce debt levels sitting at 55.9% and long term increase in employment would also fund the ability...
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...LEVEL ARE AS FOLLOWS: * MONSOON: While the inflation trajectory has been positive in the last few months, there are worries that a poor monsoon may play truant. Indian agriculture and food production is majorly dependent on rainfall as irrigation is still not used everywhere. So a shortage of rainfall could impact food production output. This could have a direct bearing on rural incomes. It could also be potentially inflationary. Monsoon is yet to pick up in various parts of India, sparking fears of a drought. So far, rainfall remains 42.6% below normal, according to a report by Kotak Securities, a Mumbai-based brokerage. This has lead to deficiency in reservoir and water-basin levels by as much as 34%, the report said. * TECHNOLOGICAL FACTORS: Technology significantly influences product development and also introduces fresh cost-cutting processes. India is served with both 3G and 4G technology which has facilitated several of their technological projects. Furthermore, the country also possesses one of the strongest IT sectors in the world, promoting constant IT development, software upgrades and other technological advancements. Recently, India has also attempted to launch their satellites into space * INTEREST RATES: The deficient monsoon could lead to a rise in inflation. “Signs of a deficient monsoon and weak acreage have increased the risks of a repeat of the 2009 phase of high food inflation,” the brokerage said. This could force the RBI to continue...
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...Indian Economy 3 India GDP Growth Rate 3 History of the Chinese Economy 4 China GDP Growth Rate 4 Economy of India 5 GDP 5 Unemployment 6 Inflation 7 Economy of China 8 GDP 8 Unemployment 9 Inflation 10 India's Export and Import 11 China's Export and Import 12 China and India Export and Import 13 Analysis and Findings...
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...INFLATION Inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. It is, often, one of the most unwanted and misunderstood of economic phenomena. We tend to believe that the prices of commodities will, over time, rise and fall, responding to the pulls and pushes of demand and supply. An unexpected decrease in the production of a commodity will lead to increase in the price of that commodity, just as an unexpected increase in the production will cause the prices to fall (cost push). Another reason for the price fluctuations can be attributed to an unexpected increase/decrease in the demand of commodities (demand pull). These price movements are a way of signaling to consumers that they should consume less of the commodity facing shortage and more of the good in abundance and to producers to produce more of what is in short supply and less of what is available in plenty. Inflation, has little to do with these changes in relative prices of goods and services though the price fluctuations of the general price level may be accompanied by relative changes in prices as well. Government policies are often directed to smoothen these price fluctuations. For the common person, Inflation is unwanted, especially on those occasions when the rise in prices of goods is not matched by an equivalent increase in the price of labour as the prices of commodities required increases. Inflation has been with humankind ever...
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... MONETARY POLICY INFLUENCE OVER ECONOMIC GROWTH. The connection among unemployment inflation grabs the attention of many economist. According to okuris law, there is a visible clear connection among country’s outcome that is declined in unemployment lead to higher nation output. However, other popular economist William Philips said that there is inverse relation between unemployment inflation because Philips argued that when high reaction of workers causes increase in nations output which abo lead to high wage, customers to carry enough money to utilize, so which customers demanding more good services price would include, so that is situation of inflation increase lead to downfall in unemployment inflation full down result to increase the ratio of unemployment. For better understanding it is important to know what is reason behind the increase relationship between both that is when there is increase in aggregate demand (AD to AD2) lead to increase in real GDP (Y1 toY2) hence companies need more labor and unemployment falls. Monetarists were criticize the Philips increase relationship, because they believes that there is no trade of in long run (As is inelastic) they said that when demand aggregate is increase than employees want higher nominal salary. Furthermore when employees get it, and work more as they think it is actual wages is increased. Thus, the upward trend in AD lead inflation and hence real wages stay same. Actually, employees understand that actual paid rate is...
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...Is Inflation in India Structural or Monetary? What are the causes? Group 14, Section 4 NAME | FT No. | Abilash.M | FT 144118 | Arpit Srivastava | FT 144103 | Hitesh Baheti | FT 144109 | Neha Aggarwal | FT 144108 | Nitesh Awasthi | FT 14498 | Phani Panthangi | FT 144104 | Rahul Sachdeva | FT 144105 | Ruchismita Sahu | FT 144100 | Sai Srikanth | FT 14499 | Sreehari Govind | FT 144106 | Group 14 Section 4 Is inflation in India Structural or Monetary? What are the causes? | What is inflation? Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. Such inflation is part of a particular economic system, so that a complete change in economic policy would be needed to get rid of it. Structural Inflation Inflation that occurs because of high commodity price, fuel price hike, change in economic structure as happened in India from Agricultural Structure to Industrialization Structure. Monetary inflation It is a sustained increase in the money supply of a country. It usually results in price inflation, which is a rise in the general level of prices of goods and services. It usually results from government regulation, monetary...
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...------------------------------------------------- INFLATION TARGETING AND INTEREST RATE RULES A Project Report by: November 23, 2015 Group #3 Section E November 23, 2015 Group #3 Section E Kaustubh (PGP/19/264) Kavya (PGP/19/265) Kunal (PGP/19/266) Madhu (PGP/19/267) Madhur(PGP/19/268) Contents Introduction ------------------------------------------------------------------------------------------------------ 2 INFLATION TARGETING USING TAYLOR TYPE OF RULES -------------------------------------------- 2 RATIONALE FOR INFLATION TARGETING IN INDIA ----------------------------------------------------- 3 RATIONALE FOR NOMINAL GDP TARGETING IN INDIA ------------------------------------------------ 3 Introduction Inflation is increased money supply, and often causing a sustained increase in the general price level of goods and services in an economy over a period of time by "Too much money chasing too few goods", as common acknowledge by modern people. Inflation is of primarily four types – hyperinflation, disinflation, deflation and stagflation. Hyperinflation involves high growth of money supply i.e. in multiples of 100 and usually occurs when central bank is involved in excess money printing. Disinflation involves inflation that is growing at a decreasing rate. Deflation or negative inflation is decrease in money supply. Stagflation occurs when high growth in prices coincides with decelerated growth and unemployment. Inflation is measured using indices namely, CPI...
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