INFLATION IS ON ACCOUNT OF

FLAWED MONETARY POLICY

NATIONAL ECONOMIC PLANNING

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 INTRODUCTION
IMPACT OF INFLATION

COMMERCIAL BORROWINGS

INFLATION IN GLOBE

FLAWED INFLATION CALCULATION

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 Impact of Inflation
Reduction in tendency to save

Loans become easy

Spiral Inflation

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 COMMERCIAL BORROWINGS
Commercial borrowing are volatile and causes
recession & bankruptcy.

• Speculative flow of money can be controlled by raising

interest rates and making credit difficult for pvt. Sector.

• Controlled through restriction if short term money from

abroad & entry of foreign financial institution in
domestic market.

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 GLOBAL INFLATION

• Inflation at Zimbabwe and Afghanistan.

• Lack of administrative and governance of

monetary policy.

• Depreciated value of currency.

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 Monthly Inflation Position

www.rbi.org.in
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 Flaws of WPI
WPI measures the general level of price
changes .

At the level of Whole seller or Producers

There is a huge difference between the

provisional and final index figure and it is
sometimes more than 100 basis points
difference between provisional figure and
final figure.

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 FLAWS OF WPI (CONTD…)
Out of 435 commodities, more than 100
commodities are ceased to be important
from consumer point of view so the price
changes in those 100 commodities does not
really affect the Indian consumers.

The importance of service sector can not be

ruled out in India but service sector are not
duly accounted in WPI. Service sector like
health and education are important as
consumers are increasingly spending more
money on these items.
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 FLAWS OF WPI(Contd..)
WPI essentially measures the price changes
from the production side and not from the
consumption side and hence it is a lop sided
viewpoint of consumers.

(P1 – Po)/ Po x 100

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 RBI LOOKS AT
Controlled inflation

Controlled Money Supply

Lending & Borrowings

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 Benchmark Interest Rates

Relationship with Inflation

Difference in Various Interest Rates

Liberalization given by RBI.

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 FII inflow

Increase in Demand for Rupee

Presence in Domestic Market

Controlling Authority

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 IMPACT OF MONEY SUPPLY ON ECONOMIC
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GROWTH 09/06/09
 FISCAL DOMINANCE TO
CURRENCY DOMINANCE
Drivers of Inflation

Focus on Rupee –Dollar Exchange Rate

SOURCE: FINANCIAL EXPRESS(15TH JULY,2008)

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 Dealing Excessive Liquidity
with MSS
The average daily net liquidity absorption
through the LAF was Rs.26,359 cr and the
outstanding balances under MSS were
placed at Rs.1,72,444 cr during April 2008.

SOURCE: MID TERM REVIEW 2008-10 BY

RBI

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 OTHER FACTORS

Variations in cash balances of the Central

Government and the Reserve Bank’s foreign
exchange operations remained the key
drivers of liquidity conditions.

SOURCE: MID TERM REVIEW 2008-10 BY

RBI

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 ASSOCHAM SUGGESTS….
Erosion of Money from Stock Market

Relaxation of norms of lending to market

intermediaries

www.assocham.org
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 IMF’s STAND
Liberalize Capital Outflow

To check required level of monetary

tightening

IMF has expressed concerns over unhealthy

companies expanding their balance sheet
because of easy liquidity.

www.imf.org

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 IMF’s STAND
Proper tax planning

Not to clamp down external commercial

borrowing.

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 Corrective steps
Tight Money Supply

Adoption of Contractionary Policy

Control over FII

Revaluation of WPI

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 Corrective Steps
Eradication of Black Money from the System.

A Proper Support from all the policies

Exchange Rate Policy.

Investment towards Productive Sector.

Attack on basic causes of Inflation.

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 BIBLIOGRAPHY
www.rbi.org.in
www.imf.org
www.bsonline.com
www.eiu.com
www.financialtimes.com
www.indianbudget.nic.in
www.esnips.com
www.assocham.org
Economic Political Weakly
Times of India
Indian express

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 GROUP MEMBERS
ARUN K
PUNIT PATEL
PUSHPAK
SRINIVAS
SANDEEP P
VANDIT

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 THANK YOU

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