The inflation rate in India was recorded at 4. 70 percent in May of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. Historically, from 1969 until 2013, India Inflation Rate averaged 7. 73 Percent reaching an all time high of 34. 68 Percent in September of 1974 and a record low of -11. 31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods.

In India, wholesale price index is divided into three groups: Primary Articles (20. 1 percent of total weight), Fuel and Power (14. 9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14. 3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10. 8 percent); Machinery and Machine Tools (8. percent); Textiles (7. 3 percent) and Transport, Equipment and Parts (5. 2 percent). This page includes a chart with historical data for India Inflation Rate. Record fall in Rupee from Rs 55 per USD to Rs 59 per USD has left many in panic with questions as will it decline further or pause at this level or regain in future. Sujan Hajra, chief economist Anand Rathi Financial services says “Rupee has depreciated 8% against the US dollar since beginning May 2013, despite active interventions from the policy makers.

However, rupee was not the only currency that got hammered. Brazil, Australia and South Africa witnessed far sharper fall in their currency in the past three months. ” However this decline could also not be one way as going forward rupee is expected to bounce back. Adds Hajra “Rupee likely to rebound by September 2013 on normalization of gold imports and falling commodity prices to help lowering India’s CAD. ” Falling value of rupee brings many times good result for the economy as loss on imports is neutralized by gain on exports.

However it works so only when trade deficit is not big but when you have much higher level of imports than exports the situation becomes alarming for the economy. Oil prices had already been surging and given India’s dependence of oil and gas import which accounts for around 80% of domestic demand now with the depreciation in value of Rupee will compound the trade deficit problem significantly. This will make oil marketing companies to increase the gasoline prices.

Any increase in the prices of oil gas has far reaching impact on increasing inflation with rise in energy cost to transportation cost. Impact on loans: Inflation has been a major focus area for the RBI and it has already indicated in monetary policy review in June that only a durable receding of inflation will make room for further monetary easing. Even after RBI cutting Repo rates 3 times by overall 75bps so far in the year 2013 banks have not passed on any benefit of these rate cuts to the borrowers as there has hardly been any reduction in lending rates by the lenders.

Due to tight liquidity conditions and high cost of deposits lenders are finding it difficult to reduce their lending rates and were waiting for RBI to reduce the CRR or SLR to reduce their lending rates. However with the increased concerns of inflation rising in future due to falling rupee the scope of a CRR or SLR reduction even in July by RBI is getting limited. The only hope for a monetary easing in July hinges on monsoon performance. Hence you will have to wait a little longer to see your EMI coming down.

Interest rates may fall as inflation slows to 3-year low Stubborn inflation has been a policy headache for nearly three years and this is the first time in 40 months that inflation has dropped below the 6%-mark. Politically, the deceleration in price rise augurs well for a government as it deals with popular sullenness over inflation, corruption and the perception of inaction. The sense of relief in government was evident from Planning Commission deputy chairman Montek Singh Ahluwalia’s reaction to the data. “Inflation behaviour is consistent with what government has been saying that it is slowly coming under control,” Ahluwalia said.

A clamour was already building up for a reduction in rates, with India Inc calling for aggressive cuts against the backdrop of easing price pressures saying that it was crucial for the revival of economic growth expected to slow to a decade’s low of 5% in the just-ended financial year. The BSE Sensex, which remained choppy in the face of some disappointing company earnings and sluggish economic data last week, joined in the celebrations. The bellwether index bounced back 115 points to close at 18,357. 0 points on hopes of an interest rate cut when the RBI meets to review policy on May 3. But the data showed that pressure points still existed in some segments such as cereals and pulses while food inflation still remains in double digits at the retail level. The government also revised upwards the January number to 7. 31% from the previously reported 6. 62% largely due to the impact of the diesel price increase. [pic] Slowing global crude and gold prices have also brought some relief for the government battling a widening current account deficit and fiscal deficit.

While the softening in inflation provides some leeway for the central bank to ease rates to boost growth, it would be guided by the high current account and fiscal deficit. The moderation in inflationary pressures was led by vegetables which declined an annual 0. 95% in March. Prices of fruit, milk, eggs, meat and fish also softened. “Given elevated levels of CPI (10. 4%) and the CAD, we are maintaining our view of a 25 basis points cut in the RBI’s May 3 policy, followed by a long pause,” said Rohini Malkani, Citigroup India economist in a note. What could change this is lower commodity prices – both oil and gold which will not only have a positive impact on inflation but also on the fisc and current account,” Malkani said. Growth is estimated to have slowed to a decade’s low of 5% in the 2012-13 fiscal year and both the RBI and the government have taken steps to revive sentiment and boost growth. The RBI has cut interest rates twice this year but has moved cautiously against the backdrop of stubborn inflation.

It will review monetary policy on May 3 and economists expect it to ease rates by about 25 basis points. Ratings agency Crisil said core or non-food manufacturing inflation continued its downward momentum and fell to 3. 5% in March, reflecting reduced pricing power of firms due to slowing demand in the economy. Weakening rural demand in 2012-13 has also reduced protein-food (milk, egg, fish & meat) inflation, which had risen significantly over the last few years driven by high growth in rural incomes.

Average protein-food inflation declined to 10. 4% in 2012-13 from 11. 3% in 2011-12 and 23. 2% in 2010-11, the agency said. India Ratings & Research chief economist Devendra Kumar Pant said the sharp decline in headline inflation in general and core inflation in particular along with slowing economy, fiscal consolidation efforts by the government and reform process since mid-September 2012 augured well for cautious monetary easing.

Question

The inflation rate in India was recorded at 4. 70 percent in May of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. Historically, from 1969 until 2013, India Inflation Rate averaged 7. 73 Percent reaching an all time high of 34. 68 Percent in September of 1974 and a record low of -11. 31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods.

In India, wholesale price index is divided into three groups: Primary Articles (20. 1 percent of total weight), Fuel and Power (14. 9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14. 3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10. 8 percent); Machinery and Machine Tools (8. percent); Textiles (7. 3 percent) and Transport, Equipment and Parts (5. 2 percent). This page includes a chart with historical data for India Inflation Rate. Record fall in Rupee from Rs 55 per USD to Rs 59 per USD has left many in panic with questions as will it decline further or pause at this level or regain in future. Sujan Hajra, chief economist Anand Rathi Financial services says “Rupee has depreciated 8% against the US dollar since beginning May 2013, despite active interventions from the policy makers.

However, rupee was not the only currency that got hammered. Brazil, Australia and South Africa witnessed far sharper fall in their currency in the past three months. ” However this decline could also not be one way as going forward rupee is expected to bounce back. Adds Hajra “Rupee likely to rebound by September 2013 on normalization of gold imports and falling commodity prices to help lowering India’s CAD. ” Falling value of rupee brings many times good result for the economy as loss on imports is neutralized by gain on exports.

However it works so only when trade deficit is not big but when you have much higher level of imports than exports the situation becomes alarming for the economy. Oil prices had already been surging and given India’s dependence of oil and gas import which accounts for around 80% of domestic demand now with the depreciation in value of Rupee will compound the trade deficit problem significantly. This will make oil marketing companies to increase the gasoline prices.

Any increase in the prices of oil gas has far reaching impact on increasing inflation with rise in energy cost to transportation cost. Impact on loans: Inflation has been a major focus area for the RBI and it has already indicated in monetary policy review in June that only a durable receding of inflation will make room for further monetary easing. Even after RBI cutting Repo rates 3 times by overall 75bps so far in the year 2013 banks have not passed on any benefit of these rate cuts to the borrowers as there has hardly been any reduction in lending rates by the lenders.

Due to tight liquidity conditions and high cost of deposits lenders are finding it difficult to reduce their lending rates and were waiting for RBI to reduce the CRR or SLR to reduce their lending rates. However with the increased concerns of inflation rising in future due to falling rupee the scope of a CRR or SLR reduction even in July by RBI is getting limited. The only hope for a monetary easing in July hinges on monsoon performance. Hence you will have to wait a little longer to see your EMI coming down.

Interest rates may fall as inflation slows to 3-year low Stubborn inflation has been a policy headache for nearly three years and this is the first time in 40 months that inflation has dropped below the 6%-mark. Politically, the deceleration in price rise augurs well for a government as it deals with popular sullenness over inflation, corruption and the perception of inaction. The sense of relief in government was evident from Planning Commission deputy chairman Montek Singh Ahluwalia’s reaction to the data. “Inflation behaviour is consistent with what government has been saying that it is slowly coming under control,” Ahluwalia said.

A clamour was already building up for a reduction in rates, with India Inc calling for aggressive cuts against the backdrop of easing price pressures saying that it was crucial for the revival of economic growth expected to slow to a decade’s low of 5% in the just-ended financial year. The BSE Sensex, which remained choppy in the face of some disappointing company earnings and sluggish economic data last week, joined in the celebrations. The bellwether index bounced back 115 points to close at 18,357. 0 points on hopes of an interest rate cut when the RBI meets to review policy on May 3. But the data showed that pressure points still existed in some segments such as cereals and pulses while food inflation still remains in double digits at the retail level. The government also revised upwards the January number to 7. 31% from the previously reported 6. 62% largely due to the impact of the diesel price increase. [pic] Slowing global crude and gold prices have also brought some relief for the government battling a widening current account deficit and fiscal deficit.

While the softening in inflation provides some leeway for the central bank to ease rates to boost growth, it would be guided by the high current account and fiscal deficit. The moderation in inflationary pressures was led by vegetables which declined an annual 0. 95% in March. Prices of fruit, milk, eggs, meat and fish also softened. “Given elevated levels of CPI (10. 4%) and the CAD, we are maintaining our view of a 25 basis points cut in the RBI’s May 3 policy, followed by a long pause,” said Rohini Malkani, Citigroup India economist in a note. What could change this is lower commodity prices – both oil and gold which will not only have a positive impact on inflation but also on the fisc and current account,” Malkani said. Growth is estimated to have slowed to a decade’s low of 5% in the 2012-13 fiscal year and both the RBI and the government have taken steps to revive sentiment and boost growth. The RBI has cut interest rates twice this year but has moved cautiously against the backdrop of stubborn inflation.

It will review monetary policy on May 3 and economists expect it to ease rates by about 25 basis points. Ratings agency Crisil said core or non-food manufacturing inflation continued its downward momentum and fell to 3. 5% in March, reflecting reduced pricing power of firms due to slowing demand in the economy. Weakening rural demand in 2012-13 has also reduced protein-food (milk, egg, fish & meat) inflation, which had risen significantly over the last few years driven by high growth in rural incomes.

Average protein-food inflation declined to 10. 4% in 2012-13 from 11. 3% in 2011-12 and 23. 2% in 2010-11, the agency said. India Ratings & Research chief economist Devendra Kumar Pant said the sharp decline in headline inflation in general and core inflation in particular along with slowing economy, fiscal consolidation efforts by the government and reform process since mid-September 2012 augured well for cautious monetary easing.

Accepted Answer

This passage primarily discusses the state of inflation and economic policies in India around May…