India's Inflation

​What is Inflation
Inflation is called as price rise. In other words Inflation means a sustained increase in the general price level of products and service in the Economy. When the general price level rises, each unit of currency buys fewer goods and services.

Thus, inflation results in loss of value of money. The main causes of inflation are either demand factor or supply side factor (cost push factor). When a general level of prices is falling over a time is called as Deflation.

Stagflation:
During the stagflation no growth in the economy. It is like a recession. Economic growth and development is slow and relatively high unemployment – economic stagnation supplemented by rising prices and a decline in Gross Domestic Product (GDP). Stagflation occurs when the prices of goods rise while unemployment increases and spending declines.

Types of inflation:
Demand-pull inflation: When demand exceeds supply i.e. shortage of supply. If people have more money that means an increase of income, they start to demand more goods because they can afford it.

Cost- push inflation: Cost-push inflation is an increase in the cost of products and services due to increase of production factors cost.

Why inflation occurs in India
Inflation in Indianeconomy is indynamic nature. It depending on the following conditions or situation.
(i) Monitory measures
(ii) Government fiscal policies
(iii) Production factors
(iv) Market conditions
(v) Indian Financial system
(vi) Consumer spending power and
attitude
(vii) Buyer Behaviour, taste and preferences of the people in the particular country.
(viii) Demand and supply factors

Impact of inflation

Generally inflation redistributes wealth from Creditors to Debtors i.e. Lender suffers and borrower’s benefits out of inflation.
2. Increase in the money supply
3. The supply of goods going down
4. Demand for money going down
5. Demand for goods and services going up

If inflation falls, the common man may not be benefitted and Debtors will loss and Creditors will be benefitted because of Money will strengthen.

Hence as a result of too much money chases just few goods that is to say scarcity in supply the prices of the commodity rises. That may considered as High Demand and Low supply.

The consumer or common man desire and purchasing power of a products and services will lead to Inflation is subject to same level of Production or output.

Strengthen the Indian economy by effective policy
India should fulfil the basic needs and wants of the people. It should be fulfilled by producing of goods or commodities and service with the support of Production factors like Men, Material, Money and Machinery, Indian Financial system Government support. This will be possible only effective policy formulation and effective use of available resources.

Measures to be taken during inflation

• During inflation time it is recommend and suggested that to expand production level by using efficient Technology and Effective Monitory policy and Fiscal Policy.
• Supply side measure will be controlled inflation.
• Cost side measures like to cut cost of Production through the technological innovation.
• Apex Bank (rbi), govt. Role and Indian industry role:
• The handling of inflation is a careful combination of effort of Apex bank (RBI) through the Monitory policy.
• To securing monetary stability in India.
• To fix the perfect Policy Rates, Reserve Ratios, Exchange Rates, Lending / Deposit Rates.
• To control on Money Market, Government Securities Market and Capital Market.
• The Government of India will also take care and control the inflation by Fiscal Policy.
• Tax incentive/Govt. programmes and schemes for better management of Inflation.
• By using innovative and efficient technology, to increase production of products and service as per the demand in economy.

Measuring of inflation:
Every economy calculate its inflation for efficient financial administration. India calculates inflation on two price indices i.e. Whole Sale Price index and Consumer Price Index. Whole sale price index inflation used for macro level analysis and Consumer Price Index inflation will be used for Micro level analysis.

Whole Sale Price Index (WPI) data 2004-05=100)

Mainly the Government will look for WPI Data for measurement of inflation. In India the wholesale price index

(WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods.

Whole Sale Price Index inflation:
The annual rate of inflation, based on monthly WPI, stood at 3.74 per cent (provisional) for the month of August, 2016 (over August, 2015) as compared to 3.55 per cent (provisional) for the previous month and -5.06 per cent during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 4.45 per cent compared to a build-up rate of 0.23 per cent in the corresponding period of the previous year.

About consumer Price Index:
The Components of the CPI, a "basket" of certain elementary goods and services such as food - meat, vegetables and bread, for example - energy, clothing, housing, medical care, education, and communication and recreation.

Reminder point:

• Wholesale Price Index and Rates of Inflation (Base Year: 2004-05=100)
• Press release released by Ministry of Commerce & Industry Office of the Economic Adviser
• Consumer Price Index. (base 2012=100)

(i)The index measures the overall changes in the level of average retail prices of goods and services consumed by the target population.

(ii) Generally RBI Looks Consumer Price Index for Policy decision making in Indian Financial system.

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has revised the Base Year of the Consumer Price Index (CPI) from 2010=100 to 2012=100 with effect from the release of indices for the month of January 2015.

Inflation rate (consumer price index)
The CPI (Rural, Urban and Combined) on Base 2012=100 is being released for the month of August 2016. In addition to this, Consumer Food Price Index (CFPI) for all India Rural, Urban and Combined are also being released for August 2016.

All India Inflation rates (on point to point basis i.e. current month over same month of last year, i.e., August 2016 over August 2015), based on General Indices and CFPIs.

By: T Anand
The writer is Director Sadhguru IAS Academy