INFLATION CRISIS IN INDIA Introduction 1.

Inflation is defined as an overall increase in general price levels of goods and services within the economy. In other words, it is an increase in cost of living. 2. In India, inflation is calculated as an annualized change in Wholesale Price Index (WPI) which includes a set of around 435 goods, unlike the Consumer Price Index (CPI) used by the rest of the world. Inflation figures based on WPI is considered to be understated as consumers pay prices higher that the wholesale prices. 3. Inflation occurs when the amount of buying power is higher than the output of goods and services. 4. Inflation also occurs when the amount of money exceeds the amount of goods and services available.

Major reasons of Inflation in India 5. 6. 7. 8. Rise in Crude oil prices Rise in Food prices Black Money GDP

Measuring Inflation 9. 435 commodities are used for the WPI based inflation calculation and base year for the WPI calculation is 1993-94. WPI is available at the end of every week (generally Saturdays), for a period of one year ended that day Inflation in the India Growth Story

Curbing Inflation Strengthen local currency e.g. Indian Rupee The Reserve Bank of India (RBI) hikes the interest rates to control inflation. Government uses the fiscal policy to check inflation. Government to choose alternative of direct intervention Reforming long term labor related policies Major Highlights In 2009-10, 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 2010-11, 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.

Conclusion Inflation continues posing a threat Inflation has been caused by rapid growth

 Fall in oil prices and higher interest rates will lead to reduction in inflation Challenges for Indian Economy in 2012 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.