IMCOST

Subject:Banking & Insurance.

Topic:-

Introduction
Inflation is no stranger to the Indian economy. Double Digit. Inflation is a rise in the level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power

Causes
Increase in Population: Increase in population leads to increased demand for goods and services. If supply of commodities are short, increased demand will lead to increase in price and inflation. Black Money: It is widely condemned that black money in the hands of tax evaders and black marketers as an important source of inflation in a country. Black money encourages lavish spending, which causes excess demand and a rise in prices.

 Poor Performance of Farm Sector: If agricultural production especially food grains production is very low. High tax rates on consumer products. An increase in production costs and labor costs, have a direct impact on prices of the final product, also resulting in inflation. When countries borrow money, they need to cope with the interest burden. This interest burden causes inflation.

History of India Inflation Rate

India was last reported at 9.41 percent in April of 2011. From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. This page includes: India Inflation Rate chart, historical data and news.

Types
Moderate inflation It occurs when prices are rising slowly. When the rate of inflation is less than 10 per cent annually, or it is a single digit annual inflation rate, it is considered to be moderate inflation in the present day economy. Running When the movement of price accelerates rapidly, running inflation emerges. Running inflation may record more than 100 per cent rise in prices over a decade. Thus, when prices rise by more than 10 per cent a year, running inflation occurs

 Galloping inflation When prices are rising at double or triple digit rates of 20,100 or 200 per cent a year, the situation may be described as galloping inflation. Galloping inflation is really a serious problem. It causes economic disturbances. Hyper inflation hyper inflation prices rise is very severe Hyper inflation is a monetary disease.

Benefits and Effects

Farmers: Farmers usually gain during inflation, because they can get better prices for their harvest during inflation Investors: Those who invest in debentures and fixed-interest bearing securities, bonds, etc, lose during inflation. However, investors in equities benefit because more dividend is yielded on account of high profit made by joint-stock companies during inflation.

 During inflation, creditors are adversely affected while the debtors are benefited. During inflation, producers are benefited but workers are affected. As a result of inflation, the fixed income groups are adversely affected but the variable income groups like the businessman are not so much affected.

Types of measures:1). Monetary measures and 2). Fiscal measures I).Monetary Measures The most important and commonly used method to control inflation is monetary policy of the Central Bank. Most central banks use high interest rates as the traditional way to fight or prevent inflation. Monetary measures used to control inflation include: (i) cash reserve ratio and (ii) open market operations.

Cash Reserve Ratio (CRR) : To control inflation, the central bank raises the CRR which reduces the lending capacity of the commercial banks. Consequently, flow of money from commercial banks to public decreases. In the process, it helps the rise in prices to the extent it is caused by banks credits to the public. Open Market Operations: Open market operations refer to sale and purchase of government securities and bonds by the central bank. To control inflation, central bank sells the government securities to the public through the banks.

II). Fiscal Measures Fiscal measures to control inflation include taxation, government expenditure and public borrowings. The government can also take some protectionist measures (such as banning the export of essential items such as pulses, cereals and oils to support the domestic consumption, encourage imports by lowering duties on import items etc.).

Presented by: Manisha.R.Bagal(02) Amisha.D.Bhanushali(03) Deepika.D.Chavan(05)

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