A Presentation on

Inflation in India
By Gautam Joshi Roll. No. 21

Inflation
The annual percentage change in the price of goods and services. It is measured through various indices and provides specific information about the prices of items that it represents. At the consumer level it is Consumer Price Index (CPI) at wholesale level it is the Producer Price Index (PPI).

Wholesale Price Index (WPI) or Producer Price Index (PPI)

PPI was first used in 1902 and is used to measure the change in the average of price level of goods trades in wholesale market.

Consumer Price Index (CPI)

CPI was first used in 1970s and is used to measure the change in the average of price level of goods trades at consumer level.

Measures of INFLATION
Inflation is measured by calculating the Inflation Rate, which means the percentage rate of change of a price index, such as the Consumer Price Index. The diff. inflation rates can show how changes in price are affecting diff. sectors of the economy, or diff. parts of the population.

Inflation affects:
Stock

Market (some amount of investments shift from equities to debt.) Companies (rise in input price for prod. of various goods) Common Mass (for ex. rise in price of oil will tend to rise in price of food items that require transportation) Govt. policies (will have to think for the extra amount of money for any plan/project)

``According to the latest news in India wholesale ``inflation rate rises to 11%, a new 13-year high.

In India Inflation causes decline in value of money i.e. when the general level of prices rises, each monetary unit buys fewer goods and service. Many prices when tend to creep upward so that to attain a zero inflation rate punish other sectors with falling prices, profits, and employment. Efforts to attain complete price stability can also lead to deflation. Acc. to Indian records Inflation cause investors to take more systematic risk, in order to gain returns.

Calculation of Inflation
Our Inflation data is calculated to two decimal places while the government only calculates to one decimal place. Therefore,while being based on the government's index our data provides a "finer" view.January and February 2005 is a perfect example, according to the government statistics both months had an inflation rate of 3 percent.

In January however, our data shows it as 2.97% and February shows as 3.01%. Therefore instead of the inflation rate being "flat" it is actually rising slightly. In another example we see August 2003 and September with the Government saying the rates were 2.2% and 2.3% respectively. This would lead us to believe that inflation rose .1% during that period. In actuality however, it rose from 2.16% to 2.32% or a .16% increase, substantially more than .1%!

Causes of Inflation:
The main cause of rise of Indian Inflation rate is the pricing disparity of agricultural products b/w producer and end-users. Moreover, the meteoric rise of prices of food products, manufacturing products and essential commodities has also catapulted the Indian Inflation Rate. As a result of the WPI of India touched 6.1% as on 6 Jan, 07. Moreover Cash Reserve Ratio touched 5.5% on the same day.

If the method of calculating Inflation plays any role?

Some economists like Mr. V.Shunmugam and D.G.Prasad assert that Indias method of calculating Inflation is wrong as there are serious flaws in the methodologies used by govt.. According to them India needs to shift the method of calculating Inflation.

See how India calculates Inflation and how other developed countries calculate...
India Most developed uses WPI for calculation countries use the and then decides CPI to calculate Inflation Rate in inflation the economy.

India is the only major country calculating Inflation with Wholesale Price Index (WPI).

Solution
The solution to this problem lies in the rationalizing the price disparity between the producer and the consumer, only this will ensure Inflation stabilization and thus sustainable economic growth of India.

Inflation in India can be control by rising the prices of products which automatically decreases the consumption of consumers or the other way is extensive advertisement for minimum utilization resources. make people aware of what are the effects of inflation and how scarcity of resources affects there future and there children (most of the people work for whole life to make there children's future secure) so if we