In the economic
survey, they say ""in addition to oil prices, India’s inflation will
be shaped by pressures from agriculture, foreign and domestic""
How does foreign
agricultural pressure shape India's inflation, since we are mostly self-sufficient
in food production?
What you think about
inflation?
Inflation - increase of prices , when there is more demand
In general terms, its
fine.. but any other inputs..??
Persistent
increase in prices more than the growth
a general
increase in prices and fall in the purchasing value of money
in general
terms Increase in the prices and reduce in purchasing power of people.. also
increase in demands..
inflation
usually is based on WPI and occurs when there is mismatch between demand and
supply
Good. Let us look at this... Inflation is defined as a
sustained increase in the general level of prices for goods and services. It is
measured as an annual percentage increase. As inflation rises, every rupee you
own buys a smaller percentage of a good or service.
In our country this is measured using two parameters i.e.,
WPI and CPI..
(WPI) Earlier, the concept of wholesale price covered the
general idea of capturing all transactions carried out in the domestic market.
The weights of the WPI did not correspond to contribution of the goods
concerned either to value - added or final use.
Precisely, the WPI is worked out taking out, as far as
possible, all transactions at first point of bulk sale in the domestic market.
The major criticism for this WPI started and gave ris to a
thought that 'the general public does not buy at the wholesale level'. Hence
WPI does not give the actual feeling of the amount of pressure borne by the
common man. However, the increase in wholesale prices does affect the retail
prices and as such give some feel of the consumer prices. This led to something
we refer as the second index.. CPI..
This CPI measures price change from the perspective of the
common man/ retail buyer in our eco terms. 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.
There were four parameters taken as a key parameters to work
out the CPI. they are: Industrial workers, Agricultural labourer, Rural
Labourer and Urban Employees etc.. So when we are working out these indices, we
have to take the domestic market and the international market as well since we
will be importing the goods and services as well.
Quoting few lines
from the economic survey
""The most
dramatic structural change relates to wage pressures. As shown in Figure 1.7,
wage growth has declined to about 3.6 percent from over 20 percent. If these
trends continue, rural wage growth can continue to decelerate, further moderating
inflationary pressures.""
How does rural wage
growth affect the inflation?"
Sir, I did not get
how the rural wages would effect inflation, since the wages are very small in
number
When we are talking about CPI, we have to consider a
distinct difference between the RURAL and URBAN population and its impact.. a
overlap...
There was a strong feeling that there is a need for
compiling CPI for entire urban and rural population of the country to measure
the inflation in Indian economy based on CPI. Thus, now Central Statistics
Office (CSO) of the Ministry of Statistics and Programme Implementation has
started compiling a new series of CPI for the
i) CPI for the entire urban population viz CPI (Urban);
ii) CPI for the entire rural population viz CPI (Rural)
iii) Consolidated CPI for Urban + Rural will also be
compiled based on above two CPIs
These would reflect the changes in the price level of
various goods and services consumed bythe Urban and rural population. These new
indices are now compiled at State / UT and all India levels.
When we understand the parameters which are used to measure
the inflation, we shall be able to correlate the graphs with them clearly.
Sir in fiscal drag
inflation occurs to cause adjustments in tax brackets? Do they have direct
relation or it happens because of rise in income?
We can state that there is a direct relation. Fiscal drag is
essentially a drag or damper on the economy caused by lack of spending or
excessive taxation. As increased taxation slows the demand for goods and
services, fiscal drag results. Fiscal drag is a natural economic stabilizer,
however, since it tends to keep demand stable and the economy from overheating.
Because it is an economic stabilizer, fiscal drag can
influence economic equality among citizens of the same region.
"One cause of fiscal drag is the consequence of
expanding economies with progressive taxation. In general, individuals are
forced into higher tax brackets as their income rises. The greater tax burden
can lead to less consumer spending. For the individuals pushed into a higher
tax bracket, the proportion of income as tax has increased, resulting in fiscal
drag"
Fiscal drag can
influence economic equality among citizens of the same region. Is this in
positive terms or negative?
Both.. for those who are earning more, they are taxed more
and thus are left with less money to spend... those who are earning less are
taxed less leaving more money to spend.. (in % terms as well.)
As far as i understand, for the man who earns more, it may
sound negative. but for the man who is under the lesser tax bracket, it may
sound positive...
About WPI, i just got some information that may be of use to
you (for a fast reading..) This (WPI) index is the most widely used inflation
indicator in India. This is published by the Office of Economic Adviser,
Ministry of Commerce and Industry. WPI captures price movements in a most comprehensive
way. It is widely used by Government, banks, industry and business circles.
Important monetary and fiscal policy changes are linked to WPI movements. It is
in use since 1939 and is being published since 1947 regularly. We are well
aware that with the changing times, the economies too undergo structural
changes. Thus, there is a need for revisiting such indices from time to time
and new set of articles / commodities are required to be included based on
current economic scenarios. Thus, since 1939, the base year of WPI has been
revised on number of occasions. The current series of Wholesale Price Index has
2004-05 as the base year. Latest revision of WPI has been done by shifting base
year from 1993-94 to 2004-05 on the recommendations of the Working Group set
upwith Prof Abhijit Sen,, Member, Planning Commission as Chairman for revision
of WPI series. This new series with base year 2004-05 has been launched on 14th
September, 2010.
I just enjoyed these links, may be you can browse through
them.. (the abstract / executive summary)..
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