Inflation in India

Only available on StudyMode
  • Download(s): 100
  • Published: July 29, 2013
Read full document
Text Preview
The inflation rate in India was recorded at 4.70 percent in May of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. Historically, from 1969 until 2013, India Inflation Rate averaged 7.73 Percent reaching an all-time high of 34.68 Percent in September of 1974 and a record low of -11.31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. In India, wholesale price index is divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power (14.9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14.3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10.8 percent); Machinery and Machine Tools (8.9 percent); Textiles (7.3 percent) and Transport, Equipment and Parts (5.2 percent).

The Inflation, GDP deflator (annual %) in World was last reported at 5.47 in 2011, according to a World Bank report published in 2012. Inflation as measured by the annual growth rate of the GDP implicit deflator shows the rate of price change in the economy as a whole. The GDP implicit deflator is the ratio of GDP in current local currency to GDP in constant local currency.

Inflation: GDP deflator (annual %) in World.

Comparison of World and Indian Economy on CPI basis:

During the fifties, in fact, the average decadal rate of inflation was very low at 1.7 per cent, with the rate varying in a wide range from a negative value of 12.5 per cent to a positive value of 13.8 percent. The minimum inflation at a negative rate in 1952-53 was in response to the bumper agricultural production in that year while the maximum inflation rate in 1956-57 was mainly attributed to demand pressures, especially investment demand, both public and private.

During the sixties, the average decadal inflation edged up to 6.4 per cent. The inflationary pressures started mounting from 1962-63, on account of the Chinese War in 1962 and unsatisfactory supply position. The Pakistan war in 1965, and the famine conditions during 1965-66 aggravated the situation further. The maximum inflation at 13.9 per cent was recorded for the year 1966-67, but the minimum inflation rate of (-) 1.1 per cent was in 1968-69 attributed primarily to the bumper agricultural production in the preceding year.

The average inflation rate during the seventies was still higher at 9.0 per cent. The maximum inflation recorded in the year 1974-75 at 25.2 per cent was mainly attributed to the failure of kharif crops in 1972-73 as also to the hike in crude oil prices in 1973. The minimum inflation rate for the decade at (-) 1.1 per cent was recorded in the following year, i.e. 1975-76, in response to the substantive anti-inflationary measures taken by the government. The year 1979-80, however, witnessed a strong resurgence of inflationary tendencies due mainly to poor agricultural output and the second hike in international oil prices. The decade was the most tumultuous as far as the price situation was concerned.

During the eighties, the decadal average inflation moved down somewhat to 8.0 percent. What is more significant is that variation in prices was small as compared to any of the preceding decades. A hike in oil prices and poor agricultural production led to reappearance of high inflation in 1979-80 (17.1 per cent) and 1980-81 (18.2 per cent).

The period 1990-91 to 1997-98 witnessed a resurgence of inflationary tendencies with four of the seven years showing price rise between 10 to 15 per cent. Following the Gulf crisis of 1991, the first...
tracking img