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Controlling Inflation in India
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Inflation Rate in India
YearInflation, average consumer prices
Percent Change
2000 4.009 -14.15%2001 3.779 -5.74%2002 4.297 13.71%2003 3.806 -11.43%2004 3.767 -1.02%2005 4.246 12.72%2006 6.177 45.48%2007 6.372 3.16%2008 8.349 31.03%2009 10.882 30.34%2010 13.187 21.18%
http://www.indexmundi.com/india/inflation_rate_(consumer_prices).html
Inflation is the rate at which the general level of prices for finished goods and services rises over a given period of time.
Current Inflation Rate is 8.62% as on July 2011
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Inflation record since 2000
http://www.indexmundi.com/india/inflation_rate_(consumer_prices).html
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
2
4
6
8
10
12
14
Inflation, average consumer prices
Inflation, average consumer prices
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Inflation Rate since 2008
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•Rise in prices of Food items & cereals
•(Due to monsoon effects, Supply declined; Prices Shot up)
Agriculture
•Rising Global crude oil prices (India’ dependence of 75% on crude oil imports since 2009)
•Banking & Financing Sectors are not structured esp in Rural Areas.
Policy
•Slowdown in Productivity & Rising Incomes contributing to high pricing of items for common population
Supply
Primary drivers of Inflation
http://petroleum.nic.in/petstat.pdf, Ministry of Petroleum & Natural Gas, GOI
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Monetary policy contraction
Increasing rates relevant to bank lending and commercial rates to discourage borrowing Repo rate: Short term rates against securities Reverse repo rate: Reverse lending rates Bank rates: Long term lending rates
Reducing liquidity• Cash reserve ratios (CRR)• Statutory Liquidity Ratios (SLR)• Marginal Standing Facility (MSF)
RBI’s Policy Measures
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Policy trends 2008 - 2011
2008 2009 2010 2011Inflation 8.30% 10.90% 13.18% 8.95%Bank Rate 6% 6% 6% 6%
Repo Rate 9% to 6.5% 5.5% to 4.75% 5% to 6.25% 6.5% to 8%
Reverse Repo Rate
5% 4% to 3.25% 3.5% to 3.75% 7%
Cash Reserve Ratio (CRR)
5.5% to 9% 5% 5.50% 6%
Statutory Liquidity Ratio (SLR)
24% 25% 24% 24%
Referencing Required
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Money Supply
Increase in Interest Rate
Consumption Decreases
Investment Decreases
Increase in Currency Rate
Export Decreases
Import Increases
Aggregate demand
Decreases
GDP Decreases
Inflation
Working of RBI’s Policy
Inflation rate
Decreases
Money Supply
Increase in Interest Rate
Consumption Increases
Investment Decreases
Increase in Currency Rate
Export Decreases
Import Increases
Aggregate demand
Increases
GDP Increases
Disparity in Purchasing, Supply Shocks, Agricultural Shocks
Rise in Global Crude Oil Prices
Ideal Situation
Actual Situation
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Fiscal Policies in tandem with Monetary Policies
Supply Side Constraints Agriculture Sector Infrastructure Development of SME Sectors Relative downward inflexibility in the
commercial interest rate structure
Way Forward
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Thank You