Harsh KhoontTECH ID: 54244

28 STATES

Introduction

Inflation can be thought as sustained rise in prices of commodities(prices of FMCG for most of common people)

and equivalently fall in value of currency of the country. Generally this rise price over a period of years.

When level of currency of the country exceeds the level of production , inflation occurs.

There are several variations on inflation:-Deflation is when the general level of prices is falling. This is the opposite of inflation.

-Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system. Major consequence of this is unemployment.

-Stagflation is the combination of high unemployment and economic stagnation with inflation.The situation in Country of Zimbabwe during fiscal year 2011-2012 can regardedas stagflation

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSESSTATISTICSSOLUTIONS

Consumer Price Index (CPI) The CPI measures price change from the perspective of the retail buyer. It is the real index for the common people. It reflects the actual inflation that is borne by the individual. CPI is designed to measure changes over time in the level of retail prices of selected goods and services on which consumers of a defined group spend their incomes.CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the pricesof a specified basket of consumer goods and services, providing a measure of inflation.CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one Most probably till January 2012, in India there were only following CPI compiled and released on national level.

Wholesale Price Index (CPI) WPI is the index that is used to measure the change in the average

price level of goods traded in wholesale market.Economist say that CPI is BETTER than WPI but…………………

Question is any way inflation is there.

How inflation is measured?INTRODUCTION

HOW INFLATION IS MEASUREDCAUSESSTATISTICSSOLUTIONS

The long-run rate of growth is determined by real factors: technical progress, demographics and the savings rate. Inflation on the other hand is a monetary phenomenon.

INFLATION IS A TAX ON MONEY HOLDERS.A change in the rate of inflation can therefore change wealth-holders’ preference between holding their wealth in the form of money or in the form of real assets and thus affect the growth rate.However, given the small proportion of total wealth which is held in the form of money, such effects are likely to be small.

There are mainly two causes of inflation in the technical terms1)Increase in nominal money supply: Increase in nominal money supply without corresponding increase in output increases the aggregate demand. The higher the money supply the higher will be the inflation.2)Increase in spending capacity: Buying more than usage and buying on credits. It should be noted that USA had broken down mainly due to this reason and not to forget our Indian economy largely depends upon economies of other developed nations. Due to economic growth people have more money to spend in general. the Sixth Pay Commission have also led to an increase in the spending power of people. People employed in the private sectors have also seen a jump in their earnings. Now this has led to an improvement in the living standards of people, but since it is not matched with a similar increase in output prices have gone up.3)Black money spending: People having black money spend money lavishly, which increases the demand un-necessarily, while supply remains unchanged and prices go up. India can never forget to debate on this topic as today whole activities are centered around this and also major political parties are fighting election with this issue in hand. 4)Repayment of Public Debts: When government repays the internal debts it increases the money supply which pushes the aggregate demand.Hoarders, black marketers and speculators etc create artificial shortage to earn5)Increase in exports (excess exports): When the country has tends to earn maximum foreign exchange and exports more and more without considering the domestic use of the commodities it creates a shortage of commodities at home which increases the prices.

CausesINTRODUCTIONHOW INFLATION IS MEASURED

CAUSESSTATISTICSSOLUTIONS

Statistics

Generally fixed income public and low income people are most affected

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSES

STATISTICSSOLUTIONS

TAKEN FROM:STATISTICA

Statistics

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSES

STATISTICSSOLUTIONS

TAKEN FROM:STATISTICA

Statistics

It should be noted that GDP and Inflation are altogether different things and are controlledBy different factors. A short Eg can be Foreign policies marginally affects GDP of our countryBut it has huge impact on inflation in our country. They can be related but above statistics

Prove that even when Inflation rate was 11.99% but GDP was dreaming 10.09%.

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSES

STATISTICSSOLUTIONS

TAKEN FROM:STATISTICA

Statistics

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSES

STATISTICSSOLUTIONS

TAKEN FROM:STATISTICA

POPULATION IS ALSO ONE THE BIGGEST PROBLEM OF INDIA WHICH ULTIMATELY LEADS TOMANY OTHER PROBLEMS

Solutions

FDI FDI stands for Foreign Direct Investment and it means that when a company invests in a country other than its host country. And now, think, what can be the advantages of such an investment. Well, let me tell you. Some of the advantages of such an investment are1. THE firms and multinational companies who interested on investing in India or in any other country are generally large turnover companies so, due to this when they settle in other country they have to pay Taxes, and these taxes are very large. So, this is one of the main advantage of having an FDI in a particular county and this is also one of the main reason why governments want FDI. Moreover this companies can take high risk.2. MOREOVER, these firms make huge profits. So, indeed this means that these firms have maximum potential to do research and innovate. In other words this means that these firms bring new technology in the country. So, this is also an advantage for a country to have FDI because due to them the country become rich in technology.This is what China has done(not complete but nevertheless enough to boost their growth) 3.These firms are controlled by several group of people, So, this means that a million masterminds are working together for the success of a particular firm.And due to this,the other enter pruners (business men) get new ideas of how to expand their business.

INTRODUCTIONHOW INFLATION IS MEASUREDCAUSESSTATISTICS

SOLUTIONS

4. FURTHERMORE, these are huge firms so, they employee millions of peopleAnd this means that these firms create jobs opportunities. So, this is also a major reason why most governments are convinced the FDI's are good and advantageous. 5. DUE to the arrival of these firms, other businesses also flourish.

Now, to make this point clear, let me give you an example, for instance, if I am a business man and have a transport company, but the problem is that, that I cannot find customers. But if an FDI comes to the country in which I have my transport company then most probably, I will have more customers because the new firm(FDI) will want to transport goods from one place to another and might need my help. And in the same way, many other businesses also flourish due to the arrival of FDI.

BUT POLITICAL SCENARIO IS SUCH THAT THIS IS RESTRICTED AND INDIAN GIANTS PLAY WITH BLACK MONEY TO RESTRICT THIS VENTURE.MANY POLITICAL POLICIES AND INSTABILITY LEADS TO DISCOURAGEMENT AMONG FOREIGN INVESTORS. NOT TO FORGET FEW DAYS BEFORE DELHI GOV. BANNED FDI IN ITS STATE BUT UNDER THE RULE OF INC IN DELHI THEY WILLING ENCOURAGED FDI , NOW SCENARIO IS SUCH MANY COMPANY OPENING THEIR OUTLETS AND MANUFACTURING UNITS IN SHORT WHILE ARE NOT HAPPY WITH THE DECISION OF GOV. IN DELHI. CENTRALIZED SYSTEM OF FDI IS MUST

SOLUTION FOR FOOD INFLATION: Revolution in farming and supply side - Invest to increase production of food(It should be noted that yield % should be increased any how).Invest in infrastructure, cold storage so that food produced is not wasted in the distribution process. Perhaps money that will tentatively come from FDI in retail move can help towards this.EXOTIC ECONOMIC POLICIES FOR OUR EXOTIC NATION: No better solution than this. If everything goes well with economy, inflation is bound to come down. Direct transfer of cash in bank accounts can be seen under this thought. There are many policies that are boneless for Eg . Vodafone(India) Sold to another firm and India not at all gaining any taxes from the transaction by change over of owners. New owner brought a company of which Vodafone(India) is subsidiary .Hence officially he has not taken over Vodafone (According to Indian Rules).Hence by Supreme Court’s order he didn’t have to pay single Rupee for the Transaction of AN INDIAN PROPERTY(Thanks to the Montek Singh and his company to revise this rule so that such incident don’t happen in future).But this time India have lost hundreds of crores rupees. Many such policies are still running in India. Because revenue cut down is one the most reason for inflation.CHANGE OVER OF CURRENCY: THIS WILL BRING ALL BLACK(WHICH IS EXPECTED TO BE MUCH MUCH IN GREATER AMOUNT THAN CIRCULATING WHITE MONEY)OUT IN THE HANDS OF GOV. AND RBI . BLACK MONEY PROBLEM CAN SOLVED RIGHT AWAY WITH ONE DEDICATED APPROACH TO CHANGE THE CURRENCIES . COUNTRIES HAVE DONE EG . MANY EUROPEAN COUNTRIES CHANGED ON TO EURO, AND IN RECENT TIMES GREECE AND NIGERIA HAVE SHOWN THIS MOVE.

When we analyze the last suggestion it may take even take two or three terms of government, and with such a political scenario corrupt politician will

not want to change the currenciesBut there can be another solution for Eg . Ban all notes which are above 50

rupee note.This will practical stop many Indians keeping black money .Even lakh crores

in 50 rupee noteWill be great volume to be kept at any other place other then bank. Every

transaction will intervene bank and hence high liquidity is favored and moreover this can help us in keeping records of Indian rupee going to foreign countries for buying commodities or for any other illegal activities. Moreover

issue of duplicate note will also be reduced