Inflation in India

Topics: Inflation, Monetary policy, Central bank Pages: 11 (4230 words) Published: November 6, 2012
Tables of Contents
1.0 Introduction2
1.1 Inflation2
1.1.1 What Inflation is?2
1.2 two types of inflation:2
1.2.1Creeping inflation2
1.3 Causes of inflation2
1.4 Measure of inflation.3
2.0 India's economy , history of inflation and inflation rate.3
2.1 Causes of inflation in India4
2.1.1 Shortage of food4
2.1.2 Population rise.4
2.1.3Weak Indian rupee.4
2.2 Impact of inflation in India5
2.2.1 Low standard of living5
2.2.2 high transportation cost5
2.2.3 High interest Rate5
2.2.4 Unemployment.6
2.3.5 Import and export6
3.0 Steps taken by the government to control inflation.7
3.1 Monetary policy.7
3.2fiscal policy.7
4.0 Recommendations.8
4.1 Open market operations8
4.2 Population control and Urbanization and Industrialization.8
4.3 Reduce the interest rate9
5.0 Conclusion.10
India has seen both elevated and low inflation, and deception the graph shows inflation since 1953 to 2011.12 References16

1.0 Introduction
This report is about inflation in India. I have discussed how inflation occurs, how it is measured , causes of inflation in India, what government has done to control inflation and my recommendations have also discussed little about India's economy. 1.1 Inflation

1.1.1 What Inflation is?
Inflation is commonly understood as a situation of substantial and rapid general increase in the level of prices and consequently, deterioration in the value of money over a period of time. by this we can understand that when the general price level rises each units of currency buys very few goods and services. (Shaikh Saleem ) 1.2 two types of inflation:

1.2.1 Creeping inflation
In this situation the rise in the price level over a period of time is at a much slower rate. This type of inflation it doesn't harm the economy of the country , the government can easily overcome the few damages fast. 1.2.2. Hyperinflation

In this situation the price level rise up every minute and there is no upward limit to which the price level may arise in the course of time. This type of inflation causes major damages and can harm the economy, the government will take a long period of type to come over the damages. 1.3 Causes of inflation

When we say excess money supply causes inflation and also that demand pulls prices up. Increase in money supply increases demand and so the prices go up. Excess demand causes prices to move up which forces workers to ask for more wages and the cost also goes up which increases the price. There are three types of inflation and each has its cause. Demand pull inflation it occurs when there is an increase in aggregate demand means that the it occurs when the total demand for goods and services exceed total supply. Cost pulls inflation is caused by the fall in aggregate supply because of the increased prices of inputs. 1.4 Measure of inflation.

There are many ways inflation can be measured : Price Index (PI), Consumer Price Index (CPI), Gross Domestic Product (GDP) deflator it represents the ratio of nominal GDP to real GDP. India uses a Whole price index (WPI) to measure its inflation rate. In India the wholesale price index is more closely observed than the consumer price index (CPI) because it includes a higher number of products .WPI measures the average of the changes of goods and services faced on the basis of wholesale price. It is also the price index which is available on the weekly basis with the shortest possible time lag of only 2 weeks.

2.0 India's economy , history of inflation and inflation rate. India a country in the south of Asia bounded by the Indian ocean in the south, Arabian Sea in the west and the Bay of Bengal on the south east and bordered to Pakistan, Nepal, Bangladesh, China, Bhutan and Burma. It's the 7th largest country by area and 2nd largest by population after china. The population of India according to the July 2012 census is 1.22 billion. (...

References: Stanford, J. (2008) UNDERSTANDING AND MEASURING INFLATION. [e-book] canada: Canadian Centre for Policy Alternatives,. p.1-2 [Accessed: 11 september 2012]. (2011) Define CRR, SLR, Bank Rate, Cash Reserve Ratio, Marginal Standing Facility, MSF. [online] Available at: [Accessed: 24 Sep 2012]. (2008) Current Essays: Inflation in India. [online] Available at: [Accessed: 24 Sep 2012]. (2012) How to control Inflation?. [online] Available at: [Accessed: 24 Sep 2012].
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SALEEM SHAIKH. (2008). Business Environment. Pearson India.
STANLAKE, G. F., GRANT, S., & STANLAKE, G. F. (2000). Stanlake 's introductory economics. Harlow, Longman. (2007) The Indian Economy - Third World Economies. [online] Available at: [Accessed: 24 Sep 2012]. (1899) Inflation in India Ppt Presentation. [online] Available at: [Accessed: 10 Sep 2012]. (2012) Did the RBI’s Rate Cut Make a Difference? - India Real Time - WSJ. [online] Available at: [Accessed: 20 Sep 2012]. (2010) Food shortage causes high inflation: Pranab | | 3. [online] Available at: [Accessed: 20 Sep 2012]. (1982) All India Consumer Price Index (General) for Industrial Workers. [online] Available at: [Accessed: 17 Sep 2012]. (1961) Causes and effects of inflation | MBA Knowledge Base. [online] Available at: [Accessed: 3 Sep 2012].
Routray, N. (2010) Inflation and its trends in indian economy. [online] Available at: [Accessed: 12 Sep 2012]. (2012) The Global Econ » KEY CAUSES OF INFLATION IN INDIA. [online] Available at: [Accessed: 8 Sep 2012].
Unknown. (2012) India 's inflation seen at 2012 high. The Indian express journalism Courage, p.1-2.
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