India struggles to tame inflation. Rising food and fuel prices are major factors driving inflation in India. While interest rate hikes by the Reserve Bank of India aim to curb demand-driven inflation, they risk slowing economic growth and do little to address supply-side constraints that continue pushing prices higher. Both monetary and fiscal measures will be needed to balance inflation control and economic growth, including increasing investment in infrastructure, agriculture, and alternative energy to boost supplies.

1. INDIA STRUGGLES TO TAME
INFLATION
GROUP 7
PRESENTED TO SANTOSH GHILDIYAL
PROF. ABHIJIT ROY DHEERAJ KUMAR
NITISH GOEL
LAISHRAM ARNOLD
ANKIT PHARTIYAL
02/13/13 GBE PRESENTATION ( GROUP 7 ) 1

2. What is inflation???
 Inflation is the state when the value of money is falling and there
is an upward rise in price level.
 Inflation occurs when the amount of buying power is higher than the
output of goods and services.
 For example, if the inflation rate is 5% for a particular item, it means
that the demand is 5% more than the total supply of that particular item.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 2

3. Types of inflation
Demand pull inflation
When demand grows faster than supply it pushes general prices up. This can
be described as “too much money chasing too few goods”.
India being a growing economy has experienced this type of Inflation for years.
Almost all industries in India face demand pull inflation especially when it comes to
the technology driven industry like Automobile, Consumer Electronics.
Cost push inflation
1) Cost-push inflation is a type of inflation caused by substantial increases in the
cost of Important goods or services where no suitable alternative is available.
2) A situation that has been often cited of this was the oil crisis of the 1970s, which some
economists see as a major cause of the inflation experienced in the western world in that
decade.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 3

4. FACTORS AFFECTING
INFLATION IN INDIA
 Rise in food prices.
 Increased in money supply.
 Black money.
 Rise in crude oil prices.
 Increasing population.
 Deficit Financing.
 Less aggregate supply of goods and services.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 4

5. EFFECTS OF INFLATION
 Business Community: Inflation is welcomed by
entrepreneurs and businessmen because they stand to
profit by rising prices.
 Farmers usually gain during inflation, because they can get
better prices for their harvest during inflation
 Decreased in the real value of money and other monetary
items.
 High inflation leads to shortage of goods.
 Uncertainty over inflation discourages savings and
investment.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 5

6. 02/13/13 GBE PRESENTATION ( GROUP 7 ) 6

7. Measures Taken to Control Inflation
1. Monetary control :- Classical economists are of the view that
inflation can be checked by controlling the supply of money. Some of
the important monetary measures to check the inflation are as under.
 Control over money-
It is suggest that to check inflation government should put strict
restrictions on the issue of money by the central bank.
 Credit control-
Central bank should pursue credit control policy. In order to control
the credit it should increase the bank rate, raise minimum cash
reserve ratio etc. It can also issue notice to other banks in order to
control credit.

8. 2. Fiscal Measures:- Measures taken by the government to
control inflation.
 Decrease in public expenditure-
One of the main reasons of inflation is excess public expenditure
like building of roads, bridges etc. Government should drastically
scale down its non essential expenditure.
 Increase in taxes-
Government should levy some new direct taxes and raise rate of
old taxes.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 8

9. Other measures:-
Increase in the production-
One of the major causes of inflation is the excess of demand over
supply, so those goods should be produced more whose prices are
likely to rise rapidly.
Proper commercial policy-
Those goods which are in scarcity should be imported as much as
possible from other countries and their exports should be
discouraged.
Proper investment policy-
Investment in those industries should be increased wherein more
production of goods can be generated over a short period of time.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 9

10. Why India is not able to tame Inflation?
RBI got into the mode of interest rate hikes by raising repo rates,
reverse repo rates. leads to :
• Lower investments
•Control the demand side inflation (high demand of commodity whose
supply is still at the same. E.g. Housing Sector)
•But building up Supply side inflation. With no new investment in
infrastructure, which constrained the logistics in not working efficiently.
• Increase in the interest rate has done little to contain food inflation but
costlier loan has hampered the growth rates of Gross Domestic
Product and industrial output .
02/13/13 GBE PRESENTATION ( GROUP 7 ) 10

11. In order to Control Supply Side Inflation:
• More investment is infused in certain sectors like Infrastructure,
agriculture sector.
• Need to provide easy capital to companies building roads,
generating power.
• Need to invest on companies which are working on alternative
energies, as the oil bill is going to be a single big reason.
• Need to invest on irrigation companies, logistics and transportation.
• To control inflation which will hurt the industry & the only
way to control is to tighten the money flow & to invest the money wisely
02/13/13 GBE PRESENTATION ( GROUP 7 ) 11

12. India's economic growth rate slipped to 6.9 per cent in 2011-12 from 8.4
% in the preceding two years. The government is aiming a growth rate of
7.6 % in the current financial year.
Current Repo rate is 8.00% (w.e.f.17/04/2012) & Reverse repo rate
7.00% (w.e.f.17/04/2012).
Currently there’s an Issue of Inflation Vs Growth is going on between RBI
& Govt. of India. RBI says that India should have to sacrifice on growth in
order to control inflation. But on the other hand government is saying to
make a balance between Inflation & Growth.
02/13/13 GBE PRESENTATION ( GROUP 7 ) 12

13. BIBILOGRAPHY
•http://www.livemint.com/Politics/740DXvCtbVwZMTRZZBZS5N/Rate-
hike-may-not-help-tame-inflation-India-Inc.html
•http://businesstoday.intoday.in/story/rbi-rate-hike-will-not-help-tame-
inflation-industry/1/18744.html
•http://www.dnaindia.com/analysis/column_why-indias-monetary-policy-is-
a-failure_1602744
•http://www.site.lalitbhatt.com/content/why-india-not-able-tame-inflation
•http://www.rediff.com/money/report/interview-kalpana-kochhar-chief-economist-
south-asia-world-bank-on-taming-inflation/20110916.html
02/13/13 GBE PRESENTATION ( GROUP 7 ) 13

14. THANK YOU
02/13/13 GBE PRESENTATION ( GROUP 7 ) 14