Wikipedia

Inflation in India

Inflation rate in India was 4.83% as of April 2024, as per the Indian Ministry of Statistics and Programme Implementation. This represents a modest reduction from the previous figure of 5.69% for December 2023. [1] CPI for the months of January, February and March 2024 are 5.10, 5.09 and 4.85 respectively. Inflation rates in India are usually quoted as changes in the Consumer Price Index (CPI), for all commodities.

Many developing countries use changes in the consumer price index (CPI) as their central measure of inflation. In India, CPI (combined) is declared as the new standard for measuring inflation (April 2014).[2] CPI numbers are typically measured monthly, and with a significant lag, making them unsuitable for policy use. India uses changes in the CPI to measure its rate of inflation.

The WPI measures the price of a representative basket of wholesale goods. In India, this basket is composed of three groups: Primary Articles (22.62% of total weight), Fuel and Power (13.15%) and Manufactured Products (64.23%). Food Articles from the Primary Articles Group account for 15.26% of the total weight. The most important components of the Manufactured Products Group are, Food products (19.12%); Chemicals and Chemical products (12%); Basic Metals, Alloys and Metal Products (10.8%); Machinery and Machine Tools (8.9%); Textiles (7.3%) and Transport, Equipment and Parts (5.2%).

WPI numbers were typically measured weekly by the Ministry of Commerce and Industry. This makes it more timely than the lagging and infrequent CPI statistic. However, since 2009 it has been measured monthly instead of weekly.

Issues

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The challenges in developing economy are many, especially when in context of the monetary policy with the Central Bank, the inflation and price stability phenomenon. There has been a universal argument these days when monetary policy is determined to be a key element in depicting and controlling inflation. The Central Bank works on the objective to control and have a stable price for commodities. A good environment of price stability happens to create saving mobilisation and a sustained economic growth. The former Governor of RBI C. Rangarajan points out that there is a long-term trade-off between output and inflation. He adds on that short-term trade-off happens to only introduce uncertainty about the price level in future. There is an agreement that the central banks have aimed to introduce the target of price stability while an argument supports it for what that means in practice.

Optimal inflation rate

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It arises as the basic theme in deciding an adequate monetary policy. There are two debatable proportions for an effective inflation, whether it should be in the range of 1–3 per cent as the inflation rate that persists in the industrialized economy or should it be in the range of 6–7 per cent. While deciding on the elaborate inflation rate certain problems occur regarding its measurement. The measurement bias has often calculated an inflation rate that is comparatively more than actual. Secondly, there often arises a problem when the quality improvements in the product are in need to be captured out, hence it affects the price index. The consumer preference for a cheaper goods affects the consumption basket at costs, for the increased expenditure on the cheaper goods takes time for the increased weight and measuring inflation. The Boskin Commission has measured 1.1 per cent of the increased inflation in USA every annum. The commission points out for the developed countries comprehensive study on inflation to be fairly low.

Money supply and inflation

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[3] The Good Quantitative Easing by the central banks with the effect of an increased money supply in an economy often helps to increase or moderate inflationary targets. There is a puzzle formation between low-rate inflation and a high growth of money supply. When the current rate of inflation is low, a high worth of money supply warrants the tightening of liquidity and an increased interest rate for a moderate aggregate demand and the avoidance of any potential problems. Further, in case of a low output a tightened monetary policy would affect the production in a much more severe manner. The supply shocks have known to play a dominant role in the regard of monetary policy. The bumper harvest in 1998–99 with a buffer yield in wheat, sugarcane, and pulses had led to an early supply condition further driving their prices from what were they in the last year. The increased import competition since 1991 with the trade liberalisation in place have widely contributed to the reduced manufacturing competition with a cheaper agricultural raw materials and the fabric industry. These cost-saving-driven technologies have often helped to drive a low inflation rate. The normal growth cycles accompanied with the international price pressures has several times being characterized by domestic uncertainties.

Global trade

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Inflation in India generally occurs as a consequence of global traded commodities and the several efforts made by the Reserve Bank of India (RBI) to weaken rupee against the dollar. This was done after the Pokhran Blasts in 1998.[4] This has been regarded as the root cause of inflation crisis rather than the domestic inflation. According to some experts the policy of RBI to absorb all dollars coming into the Indian economy contributes to the appreciation of the rupee.[5] When the U.S. dollar has shrieked by a margin of 30%, the RBI had made a massive injection of dollar in the economy make it highly liquid and this further triggered off inflation in non-traded goods. The RBI picture clearly portrays for subsidising exports with a weak dollar-exchange rate. All these account for a dangerous inflationary policies being followed by the central bank of the country.[6] Further, on account of cheap products being imported in the country which are made on a high technological and capital intensive techniques happen to either increase the price of domestic raw materials in the global market or they are forced to sell at a cheaper price, hence fetching heavy losses.

Factors

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There are several factors which help to determine the inflationary impact in the country and further help in making a comparative analysis of the policies for the same. The major determinant of the inflation in regard to the employment generation and growth is depicted by the Phillips curve.

Demand factors

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It basically occurs in a situation when the aggregate demand in the economy has exceeded the aggregate supply. It could further be described as a situation where too much money chases just few goods. A country has a capacity of producing just 5,500 units of a commodity but the actual demand in the country is 7,000 units. Hence, as a result of which due to scarcity in supply the prices of the commodity rises. This has generally been seen in India in context with the agrarian society where due to droughts and floods or inadequate methods for the storage of grains leads to lesser or deteriorated output hence increasing the prices for the commodities as the demand remains the same.

Supply factors

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The supply side inflation is a key ingredient for the rising inflation in India. The agricultural scarcity or the damage in transit creates a scarcity causing high inflationary pressures. Similarly, the high cost of labor eventually increases the production cost and leads to a high price for the commodity. The energies issues regarding the cost of production often increases the value of the final output produced. These supply driven factors have basically have a fiscal tool for regulation and moderation. Further, the global level impacts of price rise often impacts inflation from the supply side of the economy.

Consensus on the prime reason for the sticky and stubbornly high Consumer Price Index, that is retail inflation of India, is due to supply side constraints; and still where interest rate remains the only tool with the Reserve Bank of India.[7] Higher inflation rate also constraints India's manufacturing environment.[8]

Domestic factors

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Developing economies like India have generally a lesser developed financial market which creates a weak bonding between the interest rates and the aggregate demand. This accounts for the real money gap that could be determined as the potential determinant for the price rise and inflation in India. There is a gap in India for both the output and the real money gap. The supply of money grows rapidly while the supply of goods takes due time which causes increased inflation. Similarly, hoarding has been a problem of major concern in India where onion prices have shot high. There are several other stances for the gold and silver commodities and their price hike.[9]

External factors

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The exchange rate determination is an important component for the inflationary pressures that arises in India. The liberal economic perspective in India affects the domestic markets. As the prices in United States rises it impacts India where the commodities are now imported at a higher price impacting the price rise. Hence, the nominal exchange rate and the import inflation are a measures that depict the competitiveness and challenges for the economy.[10]

Value

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The annual inflation rate in India was recorded at 6.95% in 2023. Historically, from 1960 until 2023, the annual inflation rate in India averaged 7.37% reaching an all-time high of 28.60% in 1974 and a record low of -7.63% in 1976.

The inflation rate for Primary Articles is currently at 9.8% (as of 2012). This breaks down into a rate 7.3% for Food, 9.6% for Non-Food Agriculturals, and 26.6% for Mining Products. The inflation rate for Fuel and Power is at 14.0%. Finally, the inflation rate for Manufactured Articles is currently at 7.3%.[11]

Indices

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17th century

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Given below is a comparison of GDP Deflator, average consumer price inflation, cost (for filing tax returns) inflation, gold, silver and house inflation indices in India (collated from IMF, CBDT, RBI and multiple sources). GDP Deflator is a composite index of time series constructed independently by Angus Maddison and government departments (since 1950). Price index is useful in gauging income and profit of sellers, cost index is useful in gauging expenditure and loss of buyers while the gold index helps measure wealth. The gold index is in vogue for three centuries.[12][13][14]

Year GDP Deflator
(index 2011 = 100)		 Cost Index
(CBDT)		 Gold Index
(RBI)		 Silver Index
(RBI)		 House Index
(RBI)
1687 0.100
1688 0.100
1689 0.100
1690 0.100
1691 0.100
1692 0.100
1693 0.099
1694 0.099
1695 0.100
1696 0.110
1697 0.112
1698 0.111
1699 0.107

18th century

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Year GDP Deflator
(index 2011 = 100)		 Cost Index
(CBDT)		 Gold Index
(RBI)		 Silver Index
(RBI)		 House Index
(RBI)
1700 0.106
1701 0.108
1702 0.111
1703 0.109
1704 0.109
1705 0.108
1706 0.110
1707 0.111
1708 0.111
1709 0.110
1710 0.109
1711 0.110
1712 0.110
1713 0.109
1714 0.109
1715 0.108
1716 0.108
1717 0.106
1718 0.107
1719 0.106
1720 0.107
1721 0.106
1722 0.106
1723 0.107
1724 0.106
1725 0.106
1726 0.106
1727 0.107
1728 0.107
1729 0.106
1730 0.105
1731 0.105
1732 0.106
1733 0.107
1734 0.108
1735 0.109
1736 0.107
1737 0.106
1738 0.105
1739 0.105
1740 0.105
1741 0.105
1742 0.105
1743 0.105
1744 0.106
1745 0.106
1746 0.106
1747 0.108
1748 0.106
1749 0.104
1750 0.102
1751 0.101
1752 0.102
1753 0.102
1754 0.102
1755 0.103
1756 0.105
1757 0.104
1758 0.105
1759 0.101
1760 0.100
1761 0.104
1762 0.109
1763 0.108
1764 0.103
1765 0.104
1766 0.105
1767 0.106
1768 0.106
1769 0.106
1770 0.105
1771 0.105
1772 0.104
1773 0.103
1774 0.102
1775 0.103
1776 0.102
1777 0.101
1778 0.102
1779 0.103
1780 0.103
1781 0.103
1782 0.101
1783 0.102
1784 0.103
1785 0.104
1786 0.104
1787 0.104
1788 0.102
1789 0.103
1790 0.105
1791 0.105
1792 0.106
1793 0.105
1794 0.107
1795 0.109
1796 0.109
1797 0.108
1798 0.109
1799 0.110

19th century

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Year GDP Deflator
(index 2011 = 100)		 Cost Index
(CBDT)		 Gold Index
(RBI)		 Silver Index
(RBI)		 House Index
(RBI)
1800 0.110
1801 0.109
1802 0.109
1803 0.110
1804 0.111
1805 0.114
1806 0.113
1807 0.114
1808 0.120
1809 0.121
1810 0.121
1811 0.133
1812 0.146
1813 0.155
1814 0.129
1815 0.126
1816 0.110
1817 0.108
1818 0.113
1819 0.110
1820 0.110
1821 0.112
1822 0.111
1823 0.111
1824 0.110
1825 0.110
1826 0.110
1827 0.110
1828 0.110
1829 0.110
1830 0.111
1831 0.110
1832 0.110
1833 0.111
1834 0.110
1835 0.111
1836 0.110
1837 0.111
1838 0.111
1839 0.110
1840 0.109
1841 0.110
1842 0.111
1843 0.111
1844 0.111
1845 0.111
1846 0.111
1847 0.111
1848 0.111
1849 0.110
1850 0.110
1851 0.108
1852 0.109
1853 0.107
1854 0.107
1855 0.108
1856 0.108
1857 0.107
1858 0.108
1859 0.106
1860 0.107
1861 0.108
1862 0.107
1863 0.108
1864 0.108
1865 0.108
1866 0.108
1867 0.109
1868 0.109
1869 0.109
1870 0.109 - 0.090 - -
1871 0.106 - 0.090 - -
1872 0.114 - 0.091 - -
1873 0.121 - 0.092 - -
1874 0.117 - 0.094 - -
1875 0.112 - 0.096 - -
1876 0.113 - 0.103 - -
1877 0.115 - 0.100 - -
1878 0.112 - 0.104 - -
1879 0.124 - 0.106 - -
1880 0.137 - 0.105 - -
1881 0.153 - 0.106 - -
1882 0.159 - 0.105 - -
1883 0.160 - 0.108 - -
1884 0.152 - 0.108 - -
1885 0.144 - 0.112 - -
1886 0.156
1887 0.161
1888 0.168
1889 0.172
1890 0.178 - 0.114 - -
1891 0.201
1892 0.196
1893 0.180
1894 0.162
1895 0.183
1896 0.196
1897 0.172
1898 0.192
1899 0.224

20th century

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Year GDP Deflator
(index 2011 = 100)		 Cost Index
(CBDT)		 Gold Index
(RBI)		 Silver Index
(RBI)		 House Index
(RBI)
1900 0.228
1901 0.242
1902 0.242
1903 0.257
1904 0.254
1905 0.291
1906 0.306
1907 0.354
1908 0.311
1909 0.293
1910 0.304
1911 0.314
1912 0.342
1913 0.365
1914 0.320
1915 0.347
1916 0.430
1917 0.525
1918 0.760
1919 0.688 - 0.113 - -
1920 0.838
1921 0.650
1922 0.624 - 0.098 - -
1923 0.755 - 0.091 - -
1924 0.735 - 0.089 - -
1925 0.758 - 0.078 - -
1926 0.792 - 0.078 - -
1927 0.783 - 0.078 - -
1928 0.795 - 0.077 - -
1929 0.812 - 0.078 - -
1930 0.712 - 0.078 - -
1931 0.602 - 0.084 - -
1932 0.458 - 0.107 - -
1933 0.439 - 0.105 - -
1934 0.510 - 0.126 - -
1935 0.573 - 0.130 - -
1936 0.631 - 0.128 - -
1937 0.704 - 0.128 - -
1938 0.661 - 0.130 - -
1939 0.692 - 0.143 - -
1940 0.740 - 0.159 - -
1941 0.912 - 0.159 - -
1942 1.177 - 0.159 - -
1943 1.384 - 0.159 - -
1944 1.544 - 0.159 - -
1945 1.596 - 0.159 - -
1946 1.676 - 0.159 - -
1947 1.829 - 0.159 - -
1948 1.988 - 0.158 - -
1949 1.902 - 0.173 - -
1950 2.057 - 0.229 - -
1951 2.123 - 0.229 - -
1952 2.031 - 0.228 - -
1953 2.083 - 0.227 - -
1954 1.879 - 0.228 - -
1955 1.853 - 0.229 - -
1956 2.091 - 0.228 - -
1957 2.162 - 0.228 - -
1958 2.245 - 0.227 - -
1959 2.304 - 0.227 - -
1960 2.392 - 0.228 - -
1961 2.443 - 0.228 - -
1962 2.551 - 0.228 - -
1963 2.764 - 0.228 - -
1964 3.000 - 0.228 - -
1965 3.250 - 0.228 - -
1966 3.681 - 0.288 - -
1967 3.998 - 0.360 - -
1968 4.095 - 0.404 - -
1969 4.232 - 0.429 - -
1970 4.298 - 0.376 1.383 -
1971 4.527 - 0.423 1.211 -
1972 5.017 - 0.604 1.529 -
1973 5.912 - 1.106 2.698 -
1974 6.897 - 1.752 3.902 -
1975 6.784 - 1.850 4.066 -
1976 7.189 - 1.535 4.305 -
1977 7.595 - 1.776 4.352 -
1978 7.782 - 2.165 5.197 -
1979 9.006 - 3.427 15.106 -
1980 10.042 - 6.600 13.401 -
1981 11.129 10.000 5.449 8.724 -
1982 12.031 10.900 4.867 9.431 -
1983 13.060 11.600 5.848 11.722 -
1984 14.094 12.500 5.590 9.367 -
1985 15.108 13.300 5.349 7.987 -
1986 16.134 14.000 6.337 7.400 -
1987 17.639 15.000 7.916 10.055 -
1988 19.091 16.100 8.320 9.905 -
1989 20.702 17.200 8.469 9.487 -
1990 22.911 18.200 9.194 8.597 -
1991 26.061 19.900 11.267 10.899 -
1992 28.398 22.300 13.267 12.499 -
1993 31.198 24.400 15.422 15.803 -
1994 34.312 25.900 16.522 17.291 -
1995 37.422 28.100 17.068 19.364 -
1996 40.256 30.500 18.869 19.208 -
1997 42.863 33.100 16.510 20.513 -
1998 46.297 35.100 16.676 23.813 -
1999 47.717 38.900 16.487 24.288 -

21st century

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Year GDP Deflator
(index 2011 = 100)		 Cost Index
(CBDT)		 Gold Index
(RBI)		 Silver Index
(RBI)		 House Index
(RBI)
2000 49.457 40.600 17.214 23.700 -
2001 51.048 42.600 17.555 22.362 -
2002 52.944 44.700 20.676 24.228 -
2003 54.992 46.300 23.211 26.608 -
2004 58.141 48.000 25.374 32.555 -
2005 61.409 49.700 26.800 38.057 -
2006 66.568 51.900 37.399 60.446 -
2007 71.191 55.100 39.311 62.460 -
2008 77.736 58.200 51.790 66.864 -
2009 83.209 63.200 64.353 79.933 -
2010 91.968 71.100 76.495 116.836 53.300
2011 100.000 78.500 100.000 181.068 67.050
2012 107.934 85.200 123.907 177.763 80.400
2013 114.612 93.900 113.067 138.810 90.250
2014 118.430 102.400 105.716 118.703 106.050
2015 121.130 108.100 101.825 106.972 109.550
2016 125.052 112.500 114.900 127.866 121.000
2017 130.016 115.900 112.055 116.539 129.100
2018 135.066 119.280 118.634 115.134 133.350
2019 138.295 - 133.678 - -
2020 146.041 - 179.1182 - -
2021 160.062 - 181.712 - -

References

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  1. ^ https://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_13may24.pdf. {{cite news}}: Missing or empty |title= (help)
  2. ^ "RBI adopts new CPI as key measure of inflation". The Hindu. 2014-04-02.
  3. ^ "Central Banking In New Millennium- Andrew Crockett" (PDF).
  4. ^ G. Shailaja (2008). International Finance. Universities Press. p. 58. ISBN 978-81-7371-604-1. Retrieved 9 September 2013.
  5. ^ Venkitaramanan S (15 August 2003). Indian Economy: Reviews And Commentaries -. ICFAI Books. p. 168. ISBN 978-81-7881-161-1. Retrieved 9 September 2013.
  6. ^ From fiscal dominance to currency dominance: diagonosing and addressing India's inflation crisis of 2008
  7. ^ "Interest rates a blunt tool, but sole option in inflation fight: RBI Governor". livemint. 1 October 2014.
  8. ^ "Inflation fears blurring Modi's 'Made in India' vision". East Asia Forum. 25 September 2014.
  9. ^ "Hoarding In India" (PDF). The New York Times. 7 July 1889.
  10. ^ Inflation Determination in Open Economy Phillips Curve
  11. ^ "India - Prices". Quandl. Archived from the original on 2014-02-14. Retrieved 2014-02-14.
  12. ^ IMF price inflation index
  13. ^ CBDT cost inflation index
  14. ^ Gold and Silver inflation in India as per RBI
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