1. A Presentation on Inflation and
Trend Analysis in the Indian
Context Post-Reforms 1991-92
Compiled and Presented by:
Dhananjay Ghei 09HS2023
Deepant Kandoi 09HS2024
Sneha Chilivery 09HS2002
Ila Tiwari 09HS2001

2. INFLATION : An Overview

3. What is Inflation?
In economic
terms, inflation
is a rise in the
general
level of prices of
goods and
services in an
economy
over a period of
time .

4. Causes of Inflation
Demand Pull Inflation Cost Push Inflation
AD Curve shifts rightwards AS curves shifts leftwards due
due to favorable demand to adverse supply shocks in
shocks in the economy. the economy.
Output increases resulting in
more of employment in the Output does not increase.
economy.

5. General Effects
• Decrease in the purchasing
power of the currency
• Lenders or depositors who are
paid a fixed rate of interest on
loans or deposits will lose
purchasing power from their
interest earnings, while their
borrowers benefit
• No effect on the real values of
commodities, gold, real estate

6. Negative effects of inflation
• Hoarding of goods
• Social unrest and
revolt
• Hyperinflation
• Shoe leather costs
• Menu costs

7. Inflation In India : Analysis
• Taking the base year as 1993-94 we have done
analysis on the inflation rate in India and then
we have found out various causes and reasons
for inflation and the various measures
government has taken to curb inflation at
various years.
• We also try to see the trade off between
inflation and unemployment in the Indian
context.

8. Inflation In India : Analysis
We have used WPI index in our calculations
everywhere.
Why we chose WPI for our analysis?
• wider commodity coverage
• available on weekly basis
• computed at all-India basis

9. Year WPI (All Commodities)
1993-
1993-94 100
1994-
1994-95 112.6
1995-
1995-96 121.6
1996-97
1996- 127.2
1997-
1997-98 132.8
1998-
1998-99 140.7
1999-
1999-00 145.3
2000-
2000-01 155.7
2001-
2001-02 161.3
2002-
2002-03 166.8
2003-
2003-04 175.9
2004-
2004-05 187.3
2005-
2005-06 195.5
2006-
2006-07 206.1
2007-
2007-08 215.9
2008-
2008-09 233.9
2009-
2009-10 242.7

10. Average Inflation in India After
Reforms
Average Inflation =
(12.6+9.0+5.6+5.6+7.9+4.6+10.4+5.6+5.5+9.1
+11.4+8.2+10.6+9.8+18+8.8)/16 (in percent)
Average Inflation in India after reforms = 8.92%

11. Inflation Trend over the Years

12. Inflation… Why???
The earlier crisis, 1973-75 and 1979-81 were
the result of:-
• War
• Oil prices
• Drought
What government did???
• Temporary decrease in food production
• Food Rationing
• Increase in imports
• Petroleum production

13. Crisis of 1990-91
Major reasons:-
• flawed policies during the preceding years
• The mini oil shock following the outbreak of
the Gulf War only
• Galloping Fiscal Deficit
• Continuous increase in the price of food
articles
• Low industrial growth sector

14. Government Reaction
Action Plan of Government Economic Recovery
Instead of just crisis
management:-
• attempt to bring about a
more fundamental or a
paradigm shift in
macroeconomic management
• The change in BOP.
• New Economic Policies
• Increment in Foreign Exchange

15. Changes in BOP
• Till 1990
 reductions in the aid flow and
 restrictions on foreign inflows
• New Policies
 encouraging growth in exports
 change in the policy towards foreign investment
Result
Export growth has helped reduce the trade deficit from
US $ 9.4 billion in 1990-91 to US $ 2 billion in 1994-95.

16. Economic policies
• Opening for international trade Investment
• Deregulation
• Initiation of Privatization
• Tax reforms
Thus moving from Socialist to Capitalist
Economy

17. Inflation during 2008-09
• Not only high percentage
but consistent
• Tight money policy
• Severe in food grains group
• Crude Oil Price hikes

18. Reasons for Inflation in 2008-2009
• Crude Oil prices
• Hype for inflation
• New printing of money
• Reduced interest rate
• Increase in prices of food
grains, oilseeds etc

19. Reasons ( Contd.. )
Shocks:
• Global Commodity Price
Shock
– All commodity index
– Food price Index
• Edible oil (Palm): Net
Importer
• Effect on India: Primary
food & edible oils
– Iron Ore: Net exporter
– Mineral Oil: Net Importer

20. India : Unemployment Rate Data from
2002-2010
Year Unemployment Rate in India( in % )
2002 8.8
2003 8.8
2004 9.5
2005 9.2
2006 8.9
2007 7.8
2008 7.2
2009 6.8
2010 10.7

21. Philips Curve in context of India in the
short run

22. Conclusions
• In India, post reforms there has been inflation
mostly because of global scenarios which maybe
recession or rising crude oil prices that led to
tremendous increase in the general price level.
• With the introduction of reforms like
Globalization in India, the economy has been
affected to a larger extent because of changes
happening in the outside world in both the times
whether good or bad.

23. Conclusions (contd..)
• The Philips Short run curve holds good in the
Indian context on the data of 2002-10. It
shows that there is definitely a trade off
between inflation and unemployment level in
the economy and the role of implementing
effective policies to cure either of them.

24. References for Data
Reserve Bank of India Website
www.rbi.org.in
Commerce and Industry Ministry Website
www.commerce.nic.in
Govt. of India Ministry of Labour Website
www.labour.nic.in