Inflation in India - Structural or Monetary

In: Business and Management

Submitted By loopahole
Words 573
Pages 3
Is Inflation in India Structural or Monetary?
Inflationary Situation: It’s a situation in the economy where ‘too much money is chasing too few goods’. So when the products & services available are less as compared to the money supply in the money market, the economy witnesses an uptrend in their prices in order to adjust for the larger quantum of money chasing them.
Structural Policy: A Structural policy is a term used for the whole of the politico-economic measures for the organization of the structure of the national economy of a state. A Structural policy is further categorized as * Regional structural policy, which supports the settlement of industries in assisted areas by measures of the investment assistance * Sparkling wine-oral structural policy, those by subsidies and tax preferences

Monetary Policy: It refers to the process by which a country’s central bank controls money supply, often through the manipulation of interest rates, with the aim of promoting economic growth and stability while maintaining relatively stable prices and low unemployment. Monetary policy is either expansionary (mainly by lowering interest rates to combat a recession or a recessionary situation) or contractionary (raising interest rates to control inflation).

Comment:
Inflation in India is primarily structural and less monetary in outlook. Some data points supporting this point of view are as below: * Food Inflation – As it has been seen historically, the dietary patterns of the population change with increase in their incomes. As the incomes cross an inflection point, the pattern changes and a shift if observed from Carbohydrate-rich diets to protein-rich diets. As a result the food inflation rose sharply after May 2010 due to shift in dietary habits towards protein-rich food items like pulses, milk, fish and eggs. Subsequently these structural changes have…...

Similar Documents

Monetary Policy and Asset Price Interactions in India

...The dynamic interactions between monetary policy and asset prices have conventionally been examined in terms of the asset price channel of transmission of monetary policy, given the pre-crisis analytical consensus against the use of monetary policy to respond directly to asset price inflation. In the post sub-prime crisis period, however, there has been an overwhelming intellectual support for revisiting the issue of whether monetary policy should become more sensitive to asset price trends and respond proactively to prevent any build up of bubbles. In the Indian context, this paper provides empirical evidence to explain the relevance of a policy of no direct use of the interest rate instrument for stabilising asset price cycles. While the asset price channel of monetary policy is clearly visible in empirical estimates, there is no evidence of monetary policy responding to asset price developments directly. Asset price changes also do not seem to influence the inflation path, as per the impulse response analysis in a structural VAR model. This suggests why monetary policy may continue to refrain from responding directly to asset price cycles. Credit market shocks, however, explain significant proportion of asset price variations over medium to long run, which though could be part of a broader comovement of variables over the business cycle, as visible in terms of simultaneous movement in real activity, credit flows and asset prices. Higher interest rates seem to lead to......

Words: 305 - Pages: 2

Co-Relation of Growth and Inflation in India & China

...(Roll – 232) | GROUP ASSIGNMENT CORRELATION BETWEEN GROWTH AND INFLATION WITH SPECIAL REFERENCE TO INDIA & CHINA One of the most fundamental and central macroeconomic policy objectives of the governments, central bankers and economists has been to sustain high growth rate with low inflation. The influences of other macroeconomic variables like aggregate demand, unemployment and investment and that of factors like human and natural capital and technology on economic growth are well-established. But when it comes to the inter-relationship between inflation and economic growth, there are divergences in opinion, more so because of lack of any linearity in the two variables. Introduction Theoretically, it is argued that when growth is caused by rising aggregate demand at low level of unemployment, it would lead to inflationary tendencies. This is because when demand aggregate outstrips the available supply, the disequilibrium would push the prices up. Low and declining unemployment level means wages would also rise and thus price rise caused by demand pull will also bring in the cost push factors to sustain the inflationary conditions. Inflationary tendencies can be thwarted when the aggregate demand pulls are matched by increased productivity and investment. But in the times of inflationary expectations, the investment slackens as the future prospects of earnings deteriorate and thus the inflation continues to spiral. Short- run Philips Curve do give a fair......

Words: 3147 - Pages: 13

Inflation

...RESEARCH PROPOSAL TOPIC: Rising inflation in Pakistan: Causes and Remedies SUBMITTED BY: NAILA ERUM NATIONAL DEFENCE UNIVERSITY, ISLAMABAD Rising inflation in Pakistan: Causes and Remedies Introduction Pakistan is currently facing unprecedented high Inflation. High inflation is contributing to increase in vulnerability and fall in real income of lower, middle and fixed income segments of the society. It is increasing uncertainty about future scenario of the business environment and instability of the financial system, erosion of business and investors’ confidence, slowing down of real economic activities, investment, economic growth and employment. Inflation is known as a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, there is a decline in the real value of money and purchasing power. Inflation is an indicator of a country’s macro economic stability and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society. A numerous supply side and demand side factors could be responsible for this surge in inflation. Inflation can be a result of shocks to the supply of certain food items and to......

Words: 2805 - Pages: 12

Inflation

...Causes of Inflation: A Study in the Context of Bangladesh Mohammad Nayeem Abdullah1 Robaka Shamsher2 Newaz Ahmed Chowudhury3 Abstract In Asia, Bangladesh is one of the hardest hit by the current wave of inflation and oil price hike. The economy has been observing double digit inflation growth on point-to-point basis since July 2007. In Bangladesh, the correlation between per capita income and food weight in total Consumer Price Index (CPI) is one of the highest in the world and the economy is vulnerable to sharp hikes in fuel and non-fuel commodity prices. The BDTUS$ exchange rate has been depreciating steadily for some time, reaching a record high of BDT 72.70 per USD in January 2011, which has direct impact on food inflation that Bangladesh is currently experiencing. An International Monetary Fund (IMF) study shows food prices on headline inflation has been a staggering 55.9 percent in Asia in 2007, whereas the figure was 34.1 percent in the 2000-06 period. The researchers highlight that a further depreciation of the BDT could lead to additional cost push inflation for Bangladesh. This article attempts to investigate causes and consequences of inflation on the economy of Bangladesh. This paper also reviews the past record of the inflation and makes a forecast on the possible movement of inflation. At the end on the paper the researchers forward some strategic points that might be useful to reduce inflation. Keywords: Food inflation, oil price hike, general inflation, world......

Words: 4831 - Pages: 20

Monetary Policy

...RBI & Its Monetary Policies Table of Contents NO. | Particulars | 1. | Introduction of RBI | 2. | Monetary policy | 3. | Monetary policy objectives | 4. | Monetary policy functions | 5. | Operations of Monetary policy * Quantitative credit control * Selective or qualitative methods | 6. | Operating procedures of Monetary policy * Liquidity adjustment facility (LAF) * Market stabilization scheme | 7. | Monetary policy tools | 8. | Recent changes in Monetary policy | 9. | Evaluation of Monetary policy | 10. | Limitations | 11. | Conclusion | 12. | Bibliography | 13. | | 14. | | 15. | | 16. | | INTRODUCTION OF RBI The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central......

Words: 6452 - Pages: 26

Inflation - Structural or Monetary

...Is Inflation in India Structural or Monetary? What are the causes? Group 14, Section 4 NAME | FT No. | Abilash.M | FT 144118 | Arpit Srivastava | FT 144103 | Hitesh Baheti | FT 144109 | Neha Aggarwal | FT 144108 | Nitesh Awasthi | FT 14498 | Phani Panthangi | FT 144104 | Rahul Sachdeva | FT 144105 | Ruchismita Sahu | FT 144100 | Sai Srikanth | FT 14499 | Sreehari Govind | FT 144106 | Group 14 Section 4 Is inflation in India Structural or Monetary? What are the causes? | What is inflation? Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. Such inflation is part of a particular economic system, so that a complete change in economic policy would be needed to get rid of it. Structural Inflation Inflation that occurs because of high commodity price, fuel price hike, change in economic structure as happened in India from Agricultural Structure to Industrialization Structure. Monetary inflation It is a sustained increase in the money supply of a country. It usually results in price inflation, which is a rise in the general level of prices of goods and services. It usually results from government regulation,......

Words: 1860 - Pages: 8

Inflation-in-India-Docile-or-Defiant

...Inflation in India: Docile or Defiant? Executive Summary ASSOCHAM study finds that inflation was structural in nature rather than being episodic. Farm prices are less responsive to the RBI’s monetary policy whereas manufactured goods prices were found to be more responsive to the policy. Manufactured goods prices are showing new dynamics: a) Highest price rise in primary and upstream products b) A moderate rise in intermediate goods prices c) Least hikes in prices of finished and consumer products In the light of these features and trends in inflation, ASSOCHAM suggests four pronged anti-inflationary package. These includes  Structural Correction for Structural Inflation: This calls for a comprehensive action plan for the farm sector, involving among other measures, a programme for a “Horticultural revolution” for increasing productivity of fruits and vegetables, fish and poultry.  Controlling form inflation is a joint responsibility of the union Government and RBI. Only monetary policy adjustment will not correct such trend price rises. 2  Hence, RBI need not raise policy rates every time form prices are rising, as analysis shows farm price are not responding to monetary policy changes.  Manufactured good inflation is showing for greater responsiveness to monetary policy changes. RBI should concentrate more on controlling these prices  Going into the disaggregated and Sectoral price behavior of manufacturing goods, we find the dynamics of change is more in......

Words: 2563 - Pages: 11

Inflation

... | |2 |Introduction | | | |3 |Effects of inflation | | | |4 |Causes of inflation | | | |5 |Controlling inflation | | | |6 |Current situation of inflation in India | | | |7 |Extracts of the Reserve Bank of India’s document released on | | | | |July 28, 2008 | | | |8 |Measures to control inflation | | | |9 |Future inflation | | | |10 |10 nations with highest inflation | | | |11 |Media reports | | ...

Words: 13670 - Pages: 55

Money and Inflation

...Money and Inflation: A review to a Nepalese Context Money and Money Supply Money is the stock of assets that can be readily used to make transactions. Money supply is the quantity of money available in the economy. Money supply is considered as a major contributor to inflation. Monetary policy is the control over the money supply. Monetary policy is conducted by a country’s central bank. In Nepal, Nepal Rastra Bank serves as a central bank. There are different lags on the effect of money supply on inflation. M1 or Narrow Money Supply It is a category of the money supply that includes all physical money such as coins and currency; it also includes demand deposits, which are checking accounts. M1 is used to quantify the amount of money in circulation. M1 is a very liquid measure of the money supply, as it contains cash and assets that can quickly be converted to currency. M1=Currency + demand deposits, travelers’ checks, other checkable deposits M2 or Broad Money Supply It is a category within the money supply that includes M1 in addition to total time-related deposits, savings deposits, and non institutional money market funds. M2 is used when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. In Nepal, Broad money supply, M2 has a lagged and temporary effect on inflation. However, compared to other factors such as India’s inflation and international oil prices, M2 has a minor role in contributing to...

Words: 1251 - Pages: 6

Monetary in Vietnam: Alternatives to Inflation Targeting

...Monetary Policy in Vietnam: Alternatives to Inflation Targeting Le Anh Tu Packard (tu.packard@gmail.com) Fifth Draft July 2007 Paper prepared for the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst with support from the United Nations Department of Economic and Social Affairs (UNDESA). Earlier versions of this paper were presented to the May 2005 CEDES/Amherst Research Conference in Buenos Aires and the July 2005 Da Nang Symposium on Continuing Renovation of the Economy and Society. Financial support for this project has been provided by the Ford Foundation, UNDESA, and the Rockefeller Brothers Foundation. My gratitude and thanks go to two anonymous referees, Gerald Epstein, Erinc Yeldan, Jaime Ros, Lance Taylor, Per Berglund, and Phillipe Scholtes for their insightful comments and valuable ideas, and also to numerous colleagues in Vietnam including Dang Nhu Van for their helpful feedback. I am responsible for all remaining errors and omissions. List of Acronyms and Abbreviations ASEAN BFTV BIDV CEPT CIEM CMEA CPRGS DAF FDI FIE GC GDI GDP GNP GSO HDI IMF JV NEER ODA PE PER PRGF PRSC RCC REER ROSCA SBV SOCB SOE UCC UNDP VCP VLSS WTO Association of South East Asian Nations Bank for Foreign Trade of Vietnam Bank for Investment and Development of Vietnam Common Effective Preferential Tariff Central Institute for Economic Management Council of Mutual Economic Assistance Comprehensive Poverty Reduction and Growth Strategy......

Words: 10004 - Pages: 41

Inflation Targeting Policy India [

...The inflation targeting policy is mainly decided by RBI and Government targeted at “Inflation target” by mainly controlling the interest rates. A control over the Interest rates helps curbing the inflation in the long run. Inflation acts as a deflator in GDP thus it needs to be kept under a certain range. To spur up the GDP to the targeted levels we need to lower the interest rates so as to increase the economic activity and boosting the health of the economy. But doing that at the same time would lead to increase in consumer spending thus increasing the inflation. Thus there arises a seeming tradeoff between growth and inflation. In the current scenario of our country there are various factors that would suggest that this policy must be adopted. Inflation has been one of the major reason for the decline in the GDP Growth of our country since 2011. And inflation rate in India has been floating around 12-14% till 2012 which is significantly high as compared to the healthy rate of 2-5%. Looking at the current reforms in the country, the lowering of the crude oil prices and boom in the world economy indicates that economic growth is already on the rise. The same is indicated by the BSE and BSE Sensex markers. Various sectors such as infrastructure are already being supported by the government and recent policies to attract more FDI will help in reaching the targeted GDP growth rates. This would also mean that there will be a rise in overall employment and per capita......

Words: 614 - Pages: 3

Inflation in India

...Inflation refers to the rise in the price of goods and fall in the value of money. Inflation refers to the problem of rising prices. The problem has been with us for a long time now. The trend of rising prices in India has, in time, aroused dismay, consternation and anger. It has been witnessed that with the passage of time, the rich have become richer and the poor still poorer. In spite of a bad agricultural year, it is not scarcity that is troubling people so much as the continuing erosion of their purchasing power. Hence, we are nowhere near the goal of an egalitarian society which we had set out to achieve. Essay on Inflation in India (Problem of rising prices) On March 18, 2015 By Ajit Sen Category: National Issues of India This article discusses the inflation, the current situation, the causes and the means to control inflation in India. Inflation in India Inflation refers to the rise in the price of goods and fall in the value of money. Inflation refers to the problem of rising prices. The problem has been with us for a long time now. The trend of rising prices in India has, in time, aroused dismay, consternation and anger. It has been witnessed that with the passage of time, the rich have become richer and the poor still poorer. In spite of a bad agricultural year, it is not scarcity that is troubling people so much as the continuing erosion of their purchasing power. Hence, we are nowhere near the goal of an egalitarian society which we......

Words: 362 - Pages: 2

India Inflation

...INDIA INFLATION SLOWS TO LOWEST LEVEL IN MORE THAN 2 YEARS Yearly prices of food decreased 0.52% in January from a 0.74% rise in December, it happen because helped by supplies of vegetables increased. Nevertheless, price of protein-rich food items stood high. Due to the food prices fallen, central bank have to cut rates in order to prevent economic slowdown. The slow inflation growth had become good news as according to Indian policymakers where they had been struggled for high prices in the past two years. In fact, the India’s economic suffer the slowest growth for the past three years. As it was expected from the Reserve Bank of India (RBI), the economy had been stimulated in which RBI begins to cut the interest rate on the first quarter of April 1st. Furthermore, in year 2012, the economists forecast that RBI would cuts the policy rate from 100 basis points up to 50 basis points for the next quarter April to June. There was a decreased in the India’s federal bond yield from 8.79 percent to 8.18 percent for the 2012 bond yield. Besides, the prices of the food had decreased up to 0.52 percent from 0.74 percent. It happens because of the increased in the supplies of vegetables. On the other hand, the prices of the protein food like fish, meat, milk, and eggs still expensive in which it was argued to become the problems. The other area like petrol prices remains constant due to the political considerations that government......

Words: 1186 - Pages: 5

Impact of Monetary Policy on Inflation

...evidence from automobile sector 13 Impact of Privatization on profitability and efficiency of banks in Pakistan 14 To study the relationship between price earning ratio and return on investment 15 A test of price earning ratio to predict future growths 16 Factors affect on the dividend payout ratio (sugar industry) 17 Impact of macro-economic variables on stock sector of Pakistan 18 Relationship between Cash flow and investment spending in textile industry 19 Impact of taxation on firm’s dividend payout/ratio 20 Share price volatility explicatedmeasured by fundamentals 21 Stock price and economic variables ( Interest rate, inflation and GDP) 22 Determinants of P/E Ratio 23 Impact of capital structure on profitability 24 Impact of interest rate changes on bank’s profitability 25 Relationship of stock market returns and rate of inflation 26 Dividend policy and stock price volatility 27 Determinants of capital structure in case of Pharmaceutical sector 28 The impact of leverage on stock return 29 Fundamentals that predict the mutual fund, performance case of Pakistan 30 Effect of different characteristics that leads to mergers & acquisitions 31 Factors effecting leverage in Pakistani Textile industry 32 Effects of liquidity crisis on bank’s profitability 33 The Relationship between corporate strategy and capital structure 34 Is CAPM a valid predictor of stock prices of KSE? 35 Assessing the profitability determinants of Islamic banking in......

Words: 789 - Pages: 4

Inflation

...PRICE INFLATION IN BANGLADESH PRICE INFLATION IN BANGLADESH Course : Economics Prepared for: Dr. Samir Kumar Sheel Assistant Professor Department of Marketing, FACULTY OF BUSINESS STUDIES Prepared by: A.T.M. Golam Kibria Khan EMBA, 19TH BATCH, ROLL: 41119055 Department of Marketing FACULTY OF BUSINESS STUDIES UNIVERSITY OF DHAKA DATE OF SUBMISSION : August 02, 2011 Letter of Transmittal August 02, 2011 Assistant Professor, Dr. Samir Kumar Sheel Course Teacher: Economics Department of Marketing Faculty of Business Studies University of Dhaka Dear Sir, With great pleasure we are submitting our Term Paper on “Price Inflation in Bangladesh”. We have found this report as of informative, beneficial as well as insightful. We have tried our level best to prepare an effective & creditable report. The report contains detail description upon Inflation and the Price inflation in Bangladesh. Here we have gathered information through different sources. I honestly hope that this analytical assessment will identify the causes and impacts of price inflation of Bangladesh. Therefore we hope you will find this report worth all the effort we have put in it. Sincerely Yours, A.T.M. Golam Kibria Khan Executive Summary The current wave of inflation has been eroding purchasing power of the low and middle income people in Bangladesh, as they need to pay much higher bills for food grain and other commodities. The Exchequer of Bangladesh, which absorbs the petroleum price......

Words: 12375 - Pages: 50