Beruflich Dokumente
Kultur Dokumente
REFERENCE NOTE .
No. 6/RN/Ref./2013
For the use of Members of Parliament
Price Rise/Inflation
--------------------------------------------------------------------------------------------------------------------The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is
not for publication. This Service is not to be quoted as the source of the information as it is based on the
sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or
veracity of the information or views contained in the note/collection.
Content
Page No.
1.
Introduction
2.
3.
4.
5.
- Inflation in 20012-13
6.
10
7.
11
8.
11
9.
Annexures
14
Price Rise/Inflation
Introduction
The prices of commodities fluctuate, responding to the pulls and pushes of demand
and supply. A failure of a particular crop or trend for a certain kind of clothing can cause the
price of that crop and the cost of that kind of clothing to rise, just as an unexpected surplus in
the production of onions will cause the price of onions to fall.
Inflation, on the other hand, has little to do with these changes in relative prices of
goods and services1. It refers, instead, to a significant rise in the general price level in a
country over a long period of time. It is the opposite of price stability. In economics, price
stability is not used in a rigid sense to mean price fixity. A modest increase of 2 to 3 per cent
per annum in the price level is a compatible, sometimes even desirable, in the context of
economic development. However, when the general price rise appreciates (say in doubledigit figure) and experienced over a long period of time, it gets the dreaded name inflation 2.
For the common person, there is something threatening about the phenomenon of inflation,
especially on those occasions when the rise in prices of goods is not matched by an
equivalent increase in the prices of labour3.
Then what should be the tolerable limit of price rise. There is no clear- cut answer to
this question because it all depends upon the economic circumstances prevailing in a country
at a particular time. The Indian Committee to Review the Working of the Monetary System
(S. Chakravarty Committee) recommended, as a general guideline, an increase in price of
not more than 4 per cent4. Rangarajan regarded 6 per cent of inflation to be the outer limit.
Tarapore Committee recommended 3 per cent level of inflation rate. Thus the acceptable
range of inflation rate in India lies between 3-7 per cent5.
Occasional Paper by Kaushik Basu Understanding Inflation and Controlling it. 5 August, 2011
http://finmin.nic.in/WorkingPaper/understanding
2
Indian Economy A Performance Reivew, 1947-48 to 2010-11 by C.S. Prasad, 2010, p. 87
3
Occasional Paper by Kaushik Basu, op.cit.
4
Indian Economy A Performance Review, op.cit., p. 88
5
Inflationary Trends in India by Aparna Bhardwaj and Rajesh Kumar, 2011, pp. xvi-xvii
th
th
India (15 Lok Sabha ), 6 Report of Standing Committee on Finance 2009-2010, Laid on 17.12.2009
Indian Economy A Performance Review, op.cit, pp. 89-90
8
Ibid, p. 88
7
-3there are five indices for measuring changes in the price level.
Consumer Price Indices (CPIs), which are specific to a group, or class of consumers and
the one Wholesale Price Index (WPI), which has an economy wide coverage and a higher
frequency (Annexure I and II).
The current series of WPI at base 2004-05 constitutes 676 commodities. There are
three consumer price indices (CPIs) traditionally released at the national level to reflect the
fluctuations in retail prices of goods and services pertaining to specific segments of
population in the country. The basket of CPI for Industrial Workers (CPI-IW) based on
2001 included 120-360 items, CPI for Agriculture Labourers (CPI-AL) and CPI for Rural
Labourers (CPI-RL) both with base year 1986-87 included 260 items. In addition, there is
now the new series of CPI-(U+R) based on the year 2010 for both rural and urban areas and
also combined has been introduced from January 2011 and includes 456 items9.
Year-on-Year inflation based on WPI and CPIs (per cent)
-4According to the International Monetary Fund (IMF) statistics, 24 countries use WPI as
the official measure to track inflation, whereas 157 countries use CPI for the same purpose.
WPI is considered as most preferred measure of inflation in India due to its wider
coverage, scope and frequency. WPI is compiled and released by Department of Industrial
Policy and Promotion on monthly basis and weekly basis for primary articles 10.
10
-51965-66. During this decade, average inflation was higher vis--vis the previous decade, but
the variation subsided11.
The decade of the 1970s stands out as the most turbulent period in India in terms of
inflationary uncertainty, witnessing very high inflation mainly driven by the supply shocks
emanating from agricultural and oil prices. Independent Indias highest inflation occurred in
September 1974 when it reached 33.3%. Countrys worst inflationary episode was from
November 1973 to December 1974 when inflation never dropped below 20% and was above
30% for four consecutive months starting June 1974 (Annexure III). Referring to the severity
in inflation, particularly that of agricultural commodities in 1972-73 and 1973-74, the RBI
Annual Report 1974-75 observed that even the seasonal decline in prices, particularly
agricultural commodity prices, to which the Indian economy is traditionally
accustomed, did not take place during the last two years. A hike in oil prices and poor
agricultural production led to reappearance of high inflation in 1979-80 (17.1 per cent) and
1980-81 (18.2 per cent).
Inflation averaged 7.2 per cent per annum during the 1980s with a noteworthy
reduction in inflation variability. Inflation varied between 4.4 per cent in 1985-86 and 10.1 per
cent in 1990-9112.
Though on an average, inflation based on the WPI remained below the 7 percent level
through the 1950s and 1960s, it accelerated during the first half of the 1970s to touch double
digit figures but decelerated in the second half of 1970s as also through the 1980s13.
Inflation in the Post-reform Period (since 1992-93: Between end-March 1991 and endMarch 1992, the Indian rupee depreciated by nearly 37 per cent with respect to the US dollar.
Notwithstanding the limited openness of the Indian economy, this order of depreciation added
to inflationary pressures during the first half of the 1990s [RBI 2004]. Hikes in procurement
prices as well as supply demand imbalances in essential commodities like pulses, oilseeds
and edibles oils further added to inflation. Lower foreign exchange reserves in the early
1990s constrained the import option for meeting the demand gaps. The sustained rise in fuel
11
Indian Experience of Inflation: A Review of the Evolving Process R.K. Patnaik and Amaresh Samantaraya,
Economic and Political Weekly dated 28 January 2006, pp. 349-357
12
Ibid
13
-6prices at a double-digit rate (of about 13 per cent) in the first half of the 1990s had its impact
on inflation, not only directly but also through the second round effects. Furthermore, a
phased opening up of the Indian economy also added to inflationary pressures. Due to the
combined effect of all these factors, a sharp increase in inflation was witnessed during the
period 1992-9614. Four out of first five years of the 1990s registered double digit inflation.
From 1995-96 onwards, there has been a continuous deceleration and the average inflation
for the period 1996-97 to 2000-01 was the lowest since the mid 1950s in terms of the 52
week average15.
WPI Inflation in India: Periodic Averages
(Per cent)
Period
Average Inflation
Range
1951-52 to 1955-56
-2.75
-12.78 to 6.51
1956- 57 to 1960-61
6.3
3.03 to 13.79
1961-62 to 1965-66
5.8
0.0 to 11.1
1966-67 to1970-71
6.7
-0.91 to 13.95
1971-72 to 1975-76
12.0
-1.1 to 25.2
1976-77 to 1980-81
8 .5
0.0 to 18.2
1981-82 to 1985-86
6.5
4.4 to 9.3
1986-87 to 1990-91
7.8
5.8 to 10.3
1991-92 to 1995-96
10.6
8.1 to 13.7
1996-97 to 2000-01
5.0
3.3 to 7.2
-7even in 2002-03 when the country faced a severe drought, inflation remained moderate at 3.4
per cent. Moreover, 2002-03 was also marked by the simultaneous impact of several others
adverse developments such as border tensions and high international crude oil prices16.
A hardening of international oil prices as well as domestic food prices responding to a
deficient monsoon in the previous year fuelled a spurt in inflation in India during the first half
of 2004-05. Inflation began to ease in the second half of 2004-05 under the impact of a
combination of fiscal and monetary measures and weakening of south-west monsoon17. In
2005-06, WPI inflation eased to 4.3 per cent as compared to 6.5 per cent a year earlier18.
The ten-year average of headline WPI inflation was around 5.4 per cent from 2000-01
to 2009-10.In this decade 2000-01, 2003-04, 2004-05, 2006- 07, and 2008-09 had higher
inflation relative to the decadal average. The ten-year average inflation in fuel was around 8.9
per cent. The major portion of that was contributed by the high inflation of 2000-01. The
years 2003-04, 2004-05, 2006-07, and 2008-09 also witnessed high inflation in manufactured
products mainly on account of high prices of raw materials such as basic metal alloys and
metal products, nonmetallic mineral products, and machinery and machine tools. The year
2008-09 was different from the previous three years as inflation in all the three sectors
remained
high on account of high international fuel and commodity prices. The year 2009-
Ibid
-8per cent of the price rise in this period20. The whole of 2010-11 was marked by inflation
persisting with headline inflation averaging 9.6 per cent.
During 2011-12, the WPI exhibited a sustained increase, even though the pace of
increase somewhat slowed down during the latter half of the year. The financial year stared
with a headline inflation of 9.7 per cent which briefly touched double digit in September 2011
before coming down to 6.6 per cent in January 201221. The increase in the WPI during the
initial months of the year was driven by a host of factors that included an increase in food
prices, a revision in the administered prices of fuel as well as an increase in manufactured
product prices in the wake of significant pressure from high input costs as well as strong
demand and pricing power. The decline in growth during 2011-12 was expected to ease the
pressure on core inflation. However, the extent of moderation was constrained by further
pressure from rupee depreciation and high global commodity prices.
The phase of softening of inflation was marked by a decline in the contribution of food,
which again increased from February 2012 as prices increased sharply after the seasonal
decline. The contribution of non-food manufactured products remained strong despite the
deceleration in growth momentum. The contribution of fuel group to overall inflation remained
high and significant throughout the year despite suppressed inflation from the administered
prices of some petro-products, coal and electricity.
Primary food articles inflation declined sharply during November 2011January 2012,
from above 10 per cent to negative territory, largely reflecting a seasonal decline in the prices
of vegetables and a favourable base effect. However, prices rebounded significantly
subsequently, resulting in food inflation reverting to double-digit levels by April 2012. The
prices of protein-based food articles have remained persistently high since October 201122.
As per mid-year analysis 2012-13, inflation as measured by WPI averaged 8.9 per cent for
2011-12.
20
21
22
Year
Primary
Articles
Fuel and
Power
Manufactured
Products
All
Commodities
20.12
14.91
64.97
100
2000-01
2.8
28.5
3.3
7.2
2001-02
3.6
8.9
1.8
3.6
2002-03
3.3
5.5
2.6
3.4
2003-04
4.3
6.4
5.7
5.5
2004-05
3.7
10.1
6.3
6.5
3.5
11.9
3.9
5.2
2005-06
4.3
13.5
2.3
4.3
2006-07
9.6
6.5
5.6
6.5
2007-08
8.3
0.0
4.9
4.8
2008-09
11.0
11.6
6.2
8.0
2009-10
12.7
-2.1
1.8
3.6
9.2
5.9
4.1
5.5*
Average 2000-2001 to
2009-10 (10 years)
2010-11
6.4
8.9
4.1
5.4
17.7
12.3
5.7
9.6
9.8
14.0
7.3
8.9$
Weights (%)
2011-12
Inflation in 2012-13: The inflation decelerated to 7.7 per cent in first half of (April-September)
of 2012-13. WPI inflation was 8.07 per cent in September 2012, which was 8.01 per cent in
August 2012. It has fallen to 7.32 per cent in October 2012, 7.24 per cent in November, 7.18
per cent December 201223 and stood at 6.62 (provisional) for the month of January 201324.
23
24
-11The high inflation during 2010 and 2011 was a combination of both adverse global and
domestic factors as well as supply and demand factors25.
It may be noted that all three major drivers of inflation, viz., food, fuel and core have
been significantly contributing to the high and persistent inflation26.
25
Indian Inflation Puzzle (Acceptance Speech by Deepak Mohanty, Executive Director, Reserve Bank of India,
in the function of Late Dr. Ramchandra Parnerkar Outstanding Economics Award 2013 at Mumbai on January
31, 2013) (http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=776)
26
27
Reduced import duties to zero - for wheat, onion, pulses, crude palmolein and to 7.5
per cent for refined & hydrogenated oils & vegetable oils.
Duty-free import of white and raw sugar was extended up to 30.6.2012; however,
import duty of 10 per cent was instituted in June 2012.
Banned export of edible oils (except coconut oil and forest based oil) and edible oils in
blended consumer packs upto 5 kg with a capacity of 20,000 tons per annum and
pulses (except Kabuli chana and organic pulses and lentils up to a maximum of 10000
tonnes per annum).
Imposed stock limits from time to time in the case of select essential commodities such
as pulses, edible oil, and edible oilseeds and in the case of paddy and rice for specific
seven states upto 30.11.2012.
Ban on export of onion was imposed for short period of time whenever required.
Exports of Onion were calibrated through the mechanism of Minimum Export Prices
(MEP).
Maintained the Central Issue Price (CIP) for rice (at Rs 5.65 per kg for BPL and Rs 3
per kg for AAY) and wheat (at Rs 4.15 per kg for BPL and Rs 2 per kg for AAY) since
2002.
Suspended Futures trading in rice, urad, tur, guar gum and guar seed.
To ensure adequate availability of sugar for the households covered under TPDS, the
levy obligation on sugar factories was restored to 10 per cent for sugar season
2011-12.
Government allocated rice and wheat under Open Market Sales Scheme.
Resumed the scheme for subsidized imported pulses through PDS in a varied form
with the nomenclature " Scheme for Supply of Imported Pulses at Subsidized rates to
States/UTs for Distribution under PDS to BPL card holders" with a subsidy element of
Rs. 20/- per kg to be paid to the designated importing agencies upto a maximum
number of BPL card holders for the residual part of the current year and extended the
scheme for subsidized imported edible oils w.e.f. 1.10.2012 to 30.9.2013 with subsidy
of Rs. 15/- per kg for import of upto 10 Lakh tonnes of edible oils for this period27.
Monetary measures
The Reserve Bank of India (RBI) had also taken suitable steps to contain inflation with
13 consecutive increases by 375 bps in policy rates from March 2010 to October 201128.
We all know that sustained level of high inflation is bad for the economy as it imposes
real costs which are borne disproportionately by the different segment of the economy. A low
rate of inflation along with high growth is the ideal situation. The fight against inflation is a part
of agenda of Government at the present hour.
28
Ibid
-14Annexure-I
Wholesale Price Inflation (Average) - 1953-54 to 2011-12 (upto March 2012)
(Per cent)
Year
All
Commodity
Primary
Articles
of which
Food
Articles
Fuel,
Power,
Light and
Lubricants
Manufactured
Products
Nonfood
Articles
3
4
5
(Base : 1952-53 = 100)
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
1959-60
1960-61
1961-62
4.6
-6.8
-5.2
14.0
2.9
4.1
3.8
6.6
0.2
.
6.7
.
-11.3
.
-8.5
.
18.1
.
4.1
.
8.2
.
3.3
.
0.8
.
0.1
(Base : 1961-62 = 100)
.
.
.
.
.
.
.
.
.
-0.8
-2.1
-2.0
9.5
8.8
1.8
1.0
3.0
1.7
-1.0
1.6
-0.9
6.6
1.7
0.3
3.0
10.9
2.2
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
3.8
6.2
11.0
7.6
13.9
11.6
-1.1
3.7
5.5
.
6.5
.
8.4
.
17.3
.
6.8
.
18.3
.
21.4
.
-5.2
.
-0.1
.
3.6
(Base : 1970-71 = 100)
.
.
.
.
.
.
.
.
.
3.2
14.4
1.9
3.2
8.4
5.6
4.6
4.4
4.3
3.1
2.5
3.9
7.7
8.0
3.2
2.3
6.0
7.9
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
5.6
10.0
20.2
25.2
-1.1
2.1
5.2
0.0
17.1
18.2
9.3
0.9
1.1
-1.4
9.7
10.1
9.0
28.1
22.7
36.4
25.2
26.0
11.7
-6.6
-4.9
-14.6
0.8
-5.1
19.7
9.9
11.8
6.3
-1.3
-0.7
-4.3
13.8
8.2
14.2
15.0
11.4
11.9
11.3
13.1
10.5
(Base : 1981-82 = 100)
5.9
4.0
18.6
51.8
10.5
5.3
1.5
4.4
15.7
25.2
20.7
9.5
11.3
14.4
21.0
1.4
2.3
2.3
0.2
20.2
19.2
5.2
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
4.9
7.5
6.5
4.4
5.8
8.1
6.7
10.8
6.2
0.2
9.1
11.3
6.5
5.6
4.3
10.7
6.8
3.4
3.5
6.1
7.0
6.0
3.8
7.2
11.1
13.9
4.2
1.7
10.2
9.0
0.8
11.5
10.9
-3.4
11.4
21.6
-15-
1
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
2
7.5
7.5
10.3
13.7
10.1
8.4
3
4
5
4.9
9.9
-1.7
2.2
1.2
3.6
13.0
11.9
17.0
18.1
20.2
18.0
7.5
12.4
-0.2
6.9
4.9
8.9
(Base : 1993-94 = 100)
6
5.5
3.6
12.3
13.2
14.1
15.5
7
9.4
11.3
8.4
11.3
10.9
7.8
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
12.6
8.0
4.6
4.4
5.9
3.3
7.2
3.6
3.4
5.5
6.5
15.8
12.8
24.2
8.2
8.3
9.0
8.4
12.4
-0.9
2.7
3.0
2.5
12.1
12.7
10.4
1.2
3.8
-5.8
2.8
3.0
2.4
3.6
3.3
4.4
3.3
1.8
8.2
4.3
1.3
12.6
3.6
2.6
0.7
(Base : 2004-05 = 100)
8.9
5.1
10.4
13.8
3.3
9.1
28.5
8.9
5.5
6.4
10.1
12.3
8.5
2.1
2.9
4.4
2.7
3.3
1.8
2.6
5.7
6.3
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
4.4
6.6
4.7
8.1
3.8
9.6
8.9
4.3
9.6
8.3
11.0
12.7
17.7
9.8
13.5
6.5
0.0
11.6
-2.1
12.3
14.0
2.4
5.7
4.8
6.2
2.2
5.7
7.3
5.4
9.6
7.0
9.1
15.3
15.6
7.3
-3.3
5.8
11.9
12.9
5.5
22.3
9.6
Note :
1. Major groups/sub-groups under the various series are not strictly comparable on account of
changes in classification of commodities over time.
2. In the series (Base: 1961-62=100), MP comprises sub-groups chemicals, machinery and transport
equipment and manufactures.
3. Also see Notes on Tables.
Source: (i) RBI, Handbook of Statistics on Indian Economy 2011- 2012
http://rbidocs.rbi.org.in/rdocs/publication/PDFS/232
(ii) RBI, Handbook of Monetary Statistics of India 2006 http://rbidocs.rbi.org.in/rdocs/publication/PDFS/690
-16Annexure-II
Consumer Price Inflation (Average) - 1970-71 to 2011-12 (upto March 2012)
Year
1
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
(Per cent)
Industrial
Urban Non-manual
Agricultural
Workers
Employees
Labourers
2
3
4
(Base : 1960 = 100)
5.1
4.2
2.1
3.2
3.4
1.0
7.8
6.7
10.7
20.8
15.1
21.2
26.8
22.2
34.6
-1.3
2.6
-4.0
-3.8
0.0
-13.8
7.6
6.9
10.6
2.2
3.4
-2.2
8.8
7.8
9.1
11.4
11.8
14.2
12.5
11.9
12.4
7.8
8.0
5.2
12.6
10.3
11.3
(Base : 1982 = 100 for IW)
(Base : 1984-85 = 100 for UNME)
6.3
6.8
8.7
8.8
9.4
6.1
11.6
13.5
9.6
7.5
10.1
10.2
(Base : 1986-87 = 100 for AL)
9.4
6.8
13.1
3.4
3.8
4.3
4.0
3.9
3.8
4.4
6.7
(Base : 2001 = 100 for IW)
6.2
9.1
12.4
10.4
8.4
8.7
7.0
7.5
9.6
7.9
6.6
11.0
13.7
10.4
6.9
9.7
9.3
0.2
4.8
4.8
10.0
12.6
5.4
7.6
19.3
12.3
3.5
11.9
10.7
9.3
6.9
11.3
4.5
5.6
5.1
3.8
3.7
3.6
4.7
6.6
9.1
3.4
11.0
4.4
-0.3
1.1
3.2
3.9
2.6
3.9
7.8
5.9
8.9
13.0
-
7.5
10.2
13.9
10.0
8.2
-17Annexure III
Inflation Data for WPI and Food Prices from 1972-73 onwards
-18-
-19-
-20-
-21-
-22-
-23-
Source: Occasional Paper by Kaushik Basu Understanding Inflation and Controlling it. 5 August, 2011
http://finmin.nic.in/WorkingPaper/understanding
-24-
All Commodity
Combined Food
Mar-11
9.68
6.78
Apr-11
9.74
8.95
May-11
9.56
8.11
Jun-11
9.51
8.04
Jul-11
9.36
8.17
Aug-11
9.78
9.19
Sep-11
10.00
9.06
Oct-11
9.87
9.29
Nov-11
9.46
7.94
Dec-11
7.74
2.70
Jan-12
7.23
1.45
Feb-12
7.56
5.93
Mar-12
7.69
8.70
Apr-12
7.50
9.31
May-12
7.55
8.93
Jun-12
7.58
9.03
Jul-12
7.52
8.72
Aug-12
8.01
Sep-12
8.07
Oct-12
7.32
Nov-12
7.24
Dec-12
7.18
Jan-13
6.62
Source: Office of Economic Advisor, Ministry of Finance and Industry, Government of India,
Rajya Sabha Unstarred Question No. 1582 dated 27.8.2012