INFLATION IN INDIA

SUBJECT : MICROECONOMICS
PROF. TAMIL

STUDENT NAME: CHANGDEV MANE

BATCH : SMBA 07
WHAT IS INFLATION?

• Inflation means a considerable and persistent rise in the general price level over a period of time.
• Inflation up to certain level is advantageous and desirable as it is conductive to economic growth and employment.
But beyond this level, inflation is harmful and often proven disastrous to the economy.
• Hence moderate rate of inflation is considered to be desirable and acceptable.

WHAT IS THE MODERATE RATE OF INFLATION?

• Desirability of inflation depends on the need and the absorption capacity of a country which are subjected to variation from time
to time.
• However based on past experience, it is sometimes suggested to that 1-2% inflation in developed country and 4-6% inflation in
less developed countrie is desirable.
• Chakravarty Committee(1985), a committee set up by RBI to review the monetary system of the country, considered a 4%rate of
inlation in India is socially desirable and conducive to oto economic growth.

PRICE RISE ON ACCOUNT OF FOLLOWING FACTORS CANNOT BE TAKEN TO BE

INFLATIONARY.:

• Price rise due to change in the compositon of GDP in which high price industrial goods replace the low price farm products
• Price rise due to qualitative change in products across the board
• Price rise due to change in price indexing system
• Recovery in price after recession.
METHODS OF MEASURING INFLATION:

• PERCENTAGE CHANGE IN PRICE INDEX NUMBER(PIN)

Rate of Inflation = [PINt - PINt-1 / PINt-1 ] X 100

• CHANGE IN GNP DEFLATOR

GNP deflator = Nominal GNP / Real GNP

• GNP deflator gives more appropriate measure of inflation.

TYPES OF INFLATION:-

• RATE BASIS

– Moderate inflation: general level of price rise at a moderate rate over a long period of time.
– Galloping inflation : proceeds at exceptionally high rate. Rate in double or tripple digit.
– Hyper inflation. : is often defined as inflation that exeeds 50% per month.

• CAUSES BASIS
– Demand pull inflation:
– Cost push inflation:
INFLATION, DISINFLATION AND DEFLATION:

• INFLATION REFERS TO A PERSISTENT INCREASE IN THE GENERAL PRICE LEVEL.

• DISINFLATION MEANS DECLINE IN THE RATE OF INFLATION.
• DEFLATION MEANS FALL IN THE GENERAL PRICE LEVEL BELOW THE BASE YEAR LEVEL.

PRICE INDEX NUMBER % CHANGE IN PRICE

YEAR NATURE OF PRICE CHANGE
(PIN) (YEAR TO YEAR)
2000-01 100 -
2001-02 110 10 INFLATION(10%)
2002-03 105 4.5 DISINFLATION(5.5%)
2003-04 100 (-) 5.0 DISINFLATION (5.0%)
2004-05 100 0 ZERO RATE OF INFLATION
2005-06 95 -5 DEFLATION
INFLATION IN INDIA

Indian economy is prone to inflation. However, in view of the fact that it is fast growing economy, inflation rate has been within the
range of moderate inflation.
ECONOMIC EFFECT OF INFLATION:

1. Effect of inflation on distribution of income

2. Effect of inflation on distribution of welath
3. Effect of inflation on various sections of society.
1. Wage Earners
2. Producers
3. Borrowers and lenders
4. The Government
4. Effect of inflation on economic growth
5. Effect of inflation on Employment
• CONCLUSION

1. INFLATION IS GENERALLY ASSOCIATED WITH AND IS OFTEN CAUSED BY , THE HIGH

GROWTH RATE ITSELF.

2. THEREFORE INFLATION IS CONSIDERED TO BE A SERIOUS MACROECONOMIC PROBLEM

NECESSITATING FORMULATION OF SUITABLE POLICY MEASURES AND EFECTIVE
IMPLEMENTATION OF POLICY FOR CONTROLLING PRICE RISE AND MAINTAINING
INFLATION AT A REASONABLE RATE.
• THANK YOU……