52833515 indian financial system project

8/12/2019 52833515 Indian Financial System Project

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The Indian Financial System

Synopsis Inflation And Its Effect On Our Economy


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Table of Contents

Topic of Discussion

The Indian Financial System: An Overview

1. The Financial System : An Introduction

2. Financial System: Functions and Implementation

3. Financial Tools And Instrumentations

. Components of Financial System!An Introduction

Core Proect

1. Inflation : An Introduction

2. "ffects of Inflation

3. Causes of Inflation

. Inflation rate of India and other countries


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I!"IA! FI!A!CIA# S$STE%

Financial Systemis an institutional frame#or$ e%istin& in a country to enable financial transactions.There are three main parts in Indian financial system. They are as follo#s:

Financial assets comprises of loans' deposits' bonds' e(uities' etc.

Financial institutions such as ban$s' mutual funds' insurance companies' etc.

Financial mar$ets include money mar$et' capital mar$et' fore% mar$et' etc.

)e&ulation is another aspect of the financial system. The re&ulatory authorities are )*I' S"*I' I)DA'and F+C.
http://economicsinfo.cz.cc/financial-economics/indian-financial-system-an-appraisal/http://economicsinfo.cz.cc/financial-economics/indian-financial-system-an-appraisal/


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The economic de,elopment of a nation is reflected by the pro&ress of the ,arious economic units'broadly classified into corporate sector' &o,ernment and household sector. -hile performin& theiracti,ities these units #ill be placed in a surplusdeficitbalanced bud&etary situations.

There are areas or people #ith surplus funds and there are those #ith a deficit. A financial system orfinancial sector functions as an intermediary and facilitates the flo# of funds from the areas of surplusto the areas of deficit. A Financial System is a composition of ,arious institutions' mar$ets're&ulations and la#s' practices' money mana&er' analysts' transactions and claims and liabilities.


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The #ord /system/' in the term /financial system/' implies a set of comple% and closely connected orinterlined institutions' a&ents' practices' mar$ets' transactions' claims' and liabilities in the economy.The financial system is concerned about money' credit and finance!the three terms are intimatelyrelated yet are some#hat different from each other. Indian financial system consists of financialmar$et' financial instruments and financial intermediation. These are briefly discussed belo#0

FI!A!CIA# %A&'ETS

A Financial +ar$et can be defined as the mar$et in #hich financial assets are created or transferred.As a&ainst a real transaction that in,ol,es e%chan&e of money for real &oods or ser,ices' a financialtransaction in,ol,es creation or transfer of a financial asset. Financial Assets or Financial Instrumentsrepresents a claim to the payment of a sum of money sometime in the future and or periodic paymentin the form of interest or di,idend.

%oney %ar(et! The money mar$et ifs a #holesale debt mar$et for lo#!ris$' hi&hly!li(uid' short!

term instrument. Funds are a,ailable in this mar$et for periods ran&in& from a sin&le day up to ayear. This mar$et is dominated mostly by &o,ernment' ban$s and financial institutions.

Capital %ar(et! The capital mar$et is desi&ned to finance the lon&!term in,estments. Thetransactions ta$in& place in this mar$et #ill be for periods o,er a year.

Fore) %ar(et! The Fore% mar$et deals #ith the multicurrency re(uirements' #hich are met by thee%chan&e of currencies. Dependin& on the e%chan&e rate that is applicable' the transfer of funds ta$esplace in this mar$et. This is one of the most de,eloped and inte&rated mar$et across the &lobe.

Credit %ar(et! Credit mar$et is a place #here ban$s' FIs and *FCs pur,ey short' medium and

lon&!term loans to corporate and indi,iduals.

India has a financial system that is re&ulated by independent re&ulators in the sectors of ban$in&'insurance' capital mar$ets' competition and ,arious ser,ices sectors. In a number of sectorso,ernment plays the role of re&ulator.

+inistry of Finance' o,ernment of India loo$s after financial sector in India. Finance +inistrye,ery year presents annual bud&et on February 2 in the 4arliament. The annual bud&et proposeschan&es in ta%es' chan&es in &o,ernment policy in almost all the sectors and bud&etary and other


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allocations for all the +inistries of o,ernment of India. The annual bud&et is passed by the4arliament after debate and ta$es the shape of la#.

)eser,e ban$ of India 5)*I6 established in 1738 is the Central ban$. )*I is re&ulator for financialand ban$in& system' formulates monetary policy and prescribes e%chan&e control norms. The*an$in& )e&ulation Act' 177 and the )eser,e *an$ of India Act' 173 authori9e the )*I to re&ulatethe ban$in& sector in India.India has commercial ban$s' co!operati,e ban$s and re&ional rural ban$s. The commercial ban$in&sector comprises of public sector ban$s' pri,ate ban$s and forei&n ban$s. The public sector ban$scomprise the State *an$ of India; and its se,en associate ban$s and nineteen other ban$s o#ned bythe &o,ernment and account for almost three fourth of the ban$in& sector. The o,ernment of Indiahas ma?. Since then' a number of ne# re&ulates the stoc$ mar$ets.


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Introduction Of The Topic:

I!F#ATIO!is a rise in the &eneral le,el of pricesof &oods and ser,ices in aneconomyo,er a

period of time. -hen the &eneral price le,el rises' each unit of currency buys fe#er &oods and

ser,ices. Conse(uently' inflation also reflects erosion in thepurchasin& po#erof money a loss of

real ,alue in the internal medium of e%chan&e and unit of account in the economy. A chief measure of

price inflation is the inflation rate' the annuali9ed percenta&e chan&e in a &eneralprice

inde%5normally the Consumer 4rice Inde%6 o,er time.

InflationBs effects on an economy are ,arious and can be simultaneouslypositi,eand ne&ati,e.

e&ati,e effects of inflation include a decrease in the real ,alue of money and other monetary items

o,er time' uncertainty o,er future inflation may discoura&e in,estment and sa,in&s' and hi&h inflation

may lead to shorta&es of &oodsif consumers be&inhoardin&out of concern that prices #ill increase in

the future. 4ositi,e effects include ensurin& central ban$s can ad


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+yperinflation: If inflation &ets totally out of control 5in the up#ard direction6' it can &rosslyinterfere #ith the normal #or$in&s of the economy' hurtin& its ability to supply &oods. yperinflationcan lead to the abandonment of the use of the countryBs currency' leadin& to the inefficiencies ofbarter.

Dependin& upon the reason of inflation' it can be di,ided in many types as!

51.6 Demand!4ull inflation: This represents a situation #here there is increase in A&&re&ateDemand for resources either from the &o,ernment or the entrepreneurs or the households. )esult ofthis is that the pressure of Demand can;t be met by the Currently a,ailable A&&re&ate Supply #hichresult in A&&re&ate Demand G A&&re&ate Supply #hich is bound to &enerate inflationary pressure inthe economy.

52.6 Cost!4ush inflation: This represents the condition #here e,en thou&h there is no increase inA&&re&ate Demand' prices may still rise. This may happen if the costs of especially #a&e cost rise.

53.6 Structural inflation: This type of inflation occurs because of chan&e in structure of economiesas happened in India from A&ricultural Structure i.e. reen )e,olution to Industriali9ation. Thusbecause of chan&e in "conomic Structure &i,es rise to increase in prices thus &enerate inflationarypressure.

Inflation is ,ery unpopular happenin& in an economy. Hpinion sur,ey conducted in India' @SA andmany other countries re,eal that inflation is the most important concern of the people as it badlyaffects their standard of li,in&. So #hy it is called Inflation is enemy number one.

India is facin& the problem of inflationary pressure because of the increase in A&&re&ate Demand

#hile A&&re&ate Supply is respecti,ely constant. The inflationary pressure faced by Indian "conomyis due to Demand!4ull inflation i.e. A&&re&ate Demand G A&&re&ate Supply.

Thus to curb inflation need to fill the &ap bet#een A&&re&ate Demand and A&&re&ate Supply. For thiseither need to increase AS or decrease AD that can hamper economic de,elopment. Thus to increaseAS is the best tool #hich can be used. To increase AS either need to increase production capacity ofall current production unit of to build ne# production plants. *ut as (uoted in an sur,ey done by )*Ithat all the production plants are runnin& at their full production capacity thus all resources all!fullemployed the other #ay is to built ne# plant but to do this #ill ta$e at least 1months to 2years. Thusmean#hile need to decrease +oney Supply' #hich is opted by )*I.

As in short run it;s not possible to meet the &ap bet#een AD and AS thus )*I is plannin& to decreaseli(uidity by reducin& +oney Supply from the mar$et. For this it has been planned that by decreasin&C))' repo rate and re,erse repo rate =i(uidity from the mar$et #ill be drained.

C&&: Cash )eser,e )atio is the percenta&e of deposit that a commercial ban$ need to $eep #ith)*I by #hich )*I control li(uidity in the mar$et and create +oney Supply.Currently C)) is >.8? in the Indian Conte%t.

&epo &ate: is the rate at #hich )*I lends money to other commercial *an$s.
http://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Barter#Limitations_of_a_barter_economyhttp://en.wikipedia.org/wiki/Barter#Limitations_of_a_barter_economyhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Barter#Limitations_of_a_barter_economyhttp://en.wikipedia.org/wiki/Barter#Limitations_of_a_barter_economy


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)*I planned that =i(uidity from the mar$et can be drained by decreasin& money supply and to do soit is increasin& C))' repo rate' re,erse repo rate and ta$in& other measure li$e that. *ut interest isthat #hether hi$e to C)) and other factors #ill curb inflation and #hat are the other factors' #hichare influencin& inflation.

Inflation Is Caused "ue To Several Economic Factors: -hen the &o,ernment of a country print money in e%cess' prices increase to $eep up #ith the

increase in currency' leadin& to inflation. Increase in production and labor costs' ha,e a direct impact on the price of the final product'

resultin& in inflation.

-hen countries borro# money' they ha,e to cope #ith the interest burden. This interest

burden results in inflation.

i&h ta%es on consumer products' can also lead to inflation.

Demands pull inflation' #herein the economy demands more &oods and ser,ices than #hat isproduced.

Cost push inflation or supply shoc$ inflation' #herein non a,ailability of a commodity #ould

lead to increase in prices

The Pro,lems "ue To Inflation -ould .e: -hen the balance bet#een supply and demand &oes out of control' consumers could chan&e

their buyin& habits' forcin& manufacturers to cut do#n production. The mort&a&e crisis of 2EE in @SA could best illustrate the ill effects of inflation. ousin&

prices increases substantially from 2EE2 on#ards' resultin& in a dramatic decrease in demand.

Inflation can create ma


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%easures To Control Inflation:

A ,ariety of methods ha,e been used in attempts to control inflation:!

/0 +onetary policy:!

+onetary policy is the process by #hich the monetary authorityof a country controls the supply of

money' often tar&etin& a rate of interestfor the purpose of promotin&economic&ro#th and stability.1JThe official &oals usually include relati,ely stable prices and lo# unemployment. +onetary

theorypro,ides insi&ht into ho# to craft optimal monetary policy.

+onetary policy is referred to as either bein& e%pansionary' or acontractionary' #here an

e%pansionary policy increases the total supply of money in the economy more rapidly than usual' and

a contractionary policy e%pands the money supply more slo#ly than usual or e,en shrin$s it.

"%pansionary policy is traditionally used to try to combat unemploymentin a recessionby

lo#erin& interest ratesin the hope that easy credit #ill entice businesses into e%pandin&.

Contractionary policy is intended to slo# inflationin hopes of a,oidin& the resultin& distortions and

deterioration of asset ,alues.

+onetary policy is contrasted #ith fiscal policy' #hich refers to: ta%ation' &o,ernment spendin&' and

associated borro#in&

10Consumer Price Inde)

The Consumer Price Inde)or C4I is a measure of the prices of consumer &oods and ser,ices bou&ht

at retailprices. This includes food' fuel' clothin& and pharmaceuticals. The percenta&e chan&e in C4I

measures inflation.To compile the Consumer 4rice Inde%' a predetermined set of &oods' formin& a

typical bas$et of &oods bou&ht by an a,era&e urban consumer' is selected. All the items are #ei&hted

accordin& to the percenta&e ofincomethat households spend per cate&ory. An a,era&e of thechan&e in

the prices of these items is calculated on a monthly basis. Core C4I e%cludes food and ener&y prices'

#hich are often ,olatile' and is an indicator of the headline inflation rate.

2ses of Consumer Price Inde)

Apart from measurin& inflation' the inde% is useful in indicatin& the need to ad


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40 5"P deflator

D4' &ross domestic product'deflator is a method to menstruate the price chan&e of all ne# domestic

&oods and ser,ices in the economic system. It &i,es the net ,alue of all &oods and ser,ices procured

o,er a specific time.

=i$e consumer price inde%' 5"Pdeflator doesnBt rely upon a constant mar$et bas$et. The bas$et is

chan&eable' so ne# consumption patterns can be sho#n throu&h this deflator accordin& to the

peopleBs reaction to the chan&in& mar$et prices.

Interpretation:The 5"P deflator can ,e depicted mathematically ,y this e6uation *iven ,elow:

5"P deflator 7 8 !ominal 5"P 9 &eal 5"P;/


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A fi%ed e%chan&e rate' sometimes called a pe&&ed e%chan&e rate' is a type of e%chan&e rate

re&ime #herein acurrencyBs ,alue is matched to the ,alue of another sin&le currency or to a bas$et of

other currencies' or to another measure of ,alue' such as &old.

A fi%ed e%chan&e rate is usually used to stabili9e the ,alue of a currency a&ainst the currency it is

pe&&ed to. This ma$es trade and in,estments bet#een the t#o countries easier and more predictable'

and is especially useful for small economies #here e%ternal trade forms a lar&e part of their D4.

It can also be used as a means to control inflation. o#e,er' as the reference ,alue rises and falls' so

does the currency pe&&ed to it. In addition' accordin& to the+undellFlemin& model' #ith

perfect capital mobility' a fi%ed e%chan&e rate pre,ents a &o,ernment from usin& domestic monetary

policyin order to achie,emacroeconomic stability.

3. -a*e and price controls:?

%easures ta(en ,y a *overnmentunder its incomes policy to controlwa*es in an attempt to

chec( cost?push inflationand wa*e?push inflation0 Collective *overnmental effort to control theincomes of la,orand capital= usually ,y limitin* increases in wa*es and prices0 The term often refers to

policies directed at the control of inflation=,ut it may also indicate efforts to alter the distri,ution of

income amon* wor(ers= industries= locations= or occupational *roups0

>05old standard:?A monetary system in which ,oth the value of a unit of the currency and the 6uantity

of it in circulation are specified in terms of *old0If two currencies are ,oth on

the *old standard= then the e)chan*e rate ,etween them is appro)imately

determined ,y their two prices in terms of *old0

IT)H:!
http://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Mundell%E2%80%93Fleming_modelhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Macroeconomicshttp://www.businessdictionary.com/definition/measures.htmlhttp://www.investorwords.com/13768/rectangular_government_survey_system.htmlhttp://www.investorwords.com/11391/under.htmlhttp://www.businessdictionary.com/definition/incomes-policy.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/wages.htmlhttp://www.investorwords.com/1162/cost_push_inflation.htmlhttp://www.businessdictionary.com/definition/inflation.htmlhttp://www.answers.com/topic/labour-1http://www.answers.com/topic/capital-1http://www.answers.com/topic/pricehttp://www.answers.com/topic/inflationhttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Mundell%E2%80%93Fleming_modelhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Macroeconomicshttp://www.businessdictionary.com/definition/measures.htmlhttp://www.investorwords.com/13768/rectangular_government_survey_system.htmlhttp://www.investorwords.com/11391/under.htmlhttp://www.businessdictionary.com/definition/incomes-policy.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/wages.htmlhttp://www.investorwords.com/1162/cost_push_inflation.htmlhttp://www.businessdictionary.com/definition/inflation.htmlhttp://www.answers.com/topic/labour-1http://www.answers.com/topic/capital-1http://www.answers.com/topic/pricehttp://www.answers.com/topic/inflation


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The Indian economy #eathered the &lobal crisis of 2EE!E7 (uite #ell. *ut Indian economy hasclearly seen a spurt of inflation. The effect of inflation on financial mar$et is comple%' but it&enerally leads to an increase.

As inflation increases' the price of the stoc$' li$e other prices of &oods in the economy' #ill &enerallyrise as #ell. Inflation can ha,e ,arious effects on a companyBs health. -hile some companies may beunin


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matter e,en if they loo$ lucrati,e. To stren&then their position in mar$et companies ha,e le,era&edthemsel,es and too$ ad,anta&e of boost durin& 2EE3!E. The economic do#nturn and financial crisisha,e threatened to corporate distress and raised (uestion a&ainst their sol,ency especially in @S. Asper lobal Financial Stability )eport April 2EE7' emer&in& economies #ould face rollo,er needs ofmore than O1. trillion in 2EE7. "%ternal fundin& #ill be curtailed more sharply that e,en prospectedin the baseline pro


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&one up to that sta&e and used IT to reduce their costs because IT is the best #ay to be used as aneminent tool for cuttin& do#n monetary burden.QThe problems of @S slo#do#n ha,e not only impacted the IT sector on all ed&es' it has made theIndian manufacturin& and ener&y sector #orrisome too. The challen&es that Indian industry isencounterin& #ith is a uni,ersal problem of risin& ener&y and fuel cost. It is al#ays follo#ed that asthe ener&y prices &o up there is a probability of recession. The second factor that #e see today is the&lobal de,elopments in India.The te%tile' &arment and handicraft industry are #orse affected.To&ether' they are &oin& to lose four million


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Inflation is a state in the economy of a country' #hen there is a price rise of &oods as #ell as ser,ices.Inflation is not only caused by an increase in money supply but also is caused by the e%pectation ofinflation. -ith the increase in inflation e,ery sector of the economy is affected. There is a seriouseffect in interest rates' e%chan&e rates' in,estment and last but not the least Stoc$ mar$et. 4rices ofstoc$ are determined by the net earnin&s of the company. It depends on ho# much profit the companyis li$ely to ma$e in the near future. "ffect of inflation on the stoc$ mar$et is also e,ident from thefact that it increases the rates of interest. If the inflation rate is hi&h interest rate is also hi&h. In thisscenario the creditors #ill ha,e the tendency to compensate for rise in the interest rate. This compelsthe debtors to a,ail loan at a hi&her rate of interest.This affects funds from bein& in,ested in the stoc$ mar$ets. -ith the hi&h input cost and also lessermar$et the company;s profit is also bound to be reduced resultin& fall of company stoc$ prices.

Durin& inflation' this economic &ro#th is unsustainable and the stoc$ mar$ets face an ine,itable crashsince the "conomy mana&ers #ill ha,e to ti&hten the rope sooner or later. The risin& prices fuelled byinflation rob the in,estors since there is no correspondin& increase in ,alue. This has a correspondin&implication too.The companyBs financials &et o,er!stated as a result of inflation' since the re,enue and earnin&s alsorise in the same rate as the inflation and this in combination #ith additional ,alue #hich is &enerated

by the company.-hen there is a decline in the inflation' the pre,iously inflated earnin&s and re,enues li$e#ise &etsdeflated. -hen a lot of money is chasin& after &oods that are fe#er in supply' it happens to bea classic case of inflationThen the option is to ma$e money more e%pensi,e to borro#. The e%cess capital &ets remo,ed andthe cycle of price increase is slo#ed do#n. Inflation also impacts the future e%pectations of returnsfrom assets. In this situation it is (uite necessary that in,estors ha,e to protect their income bein&affected by adoptin& suitable strate&y. *elo# hi&hli&hts some of the strate&ies that can be adopted tohed&e a&ainst inflation.

Strate&ies to protect inflation ris$ in India

In,estors can prepare for une%pected inflation by adoptin& one of the t#o strate&ies. They are!

a6 ed&in& the immediate effect

b6 "arnin& a total return that outpaces inflation o,er time.

As an in,estor' a substantial portion of the portfolio ou&ht to be in fi%ed income securities. Since theinflation erodes the purchasin& po#er' fi%ed securities are the best option to counterfoil the mar$et,olatility. ",en the retirees are ad,ised to $eep some amount of their assets as a stoc$ in,estment.

The interest rate sensiti,e stoc$s should be handled #ith utmost caution durin& the inflationaryperiod.

It is important to ma$e a distinction bet#een properly anticipated inflation andunanticipated inflation. From strate&ic point of ,ie#' in,estors may #ish to consider an allocation ofassets that preser,e purchasin& po#er durin& inflationary periods.

In,estors should carefully re,ie# their financial circumstances and in,estment &oals before ma$in&chan&es in their portfolio to &uard a&ainst inflation ris$.


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In,estors should ta$e a total return approach rather than assets based on correlation #ith C4I5Consumer 4rice Inde%6.

*y choosin& assets #ith hi&her e%pected lon&!term returns and maintainin& broad di,ersification'in,estors can see$ to &ro# real #ealth and preser,e purchasin& po#er of their cash.

ed&in& techni(ues

The follo#in& ed&in& techni(ues are su&&ested to o,ercome the inflation ris$ in Indian financialmar$ets:!

=eadin& Inflation ed&es:!These are assets that tend to perform in ad,ance of inflation becomin& ,isible in the broadereconomy.

A typically di,ersified asset portfolio tends to ha,e a &reater proportion of leadin& hed&es since mostfunds are e%cessi,ely reliant on the e(uity ris$ premium to achie,e their lon& term stoc$ returns.

.Contemporaneous hed&es:!These include Inflation lin$ed bonds or inflation s#aps. Inflation lin$ed bonds are insulated a&ainstthe raise of inflation by e%plicitly imbeddin& floatin& rate of inflation into the interest coupon thatthey pay or by ad


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ote:!

In many de,eloped financial mar$ets the e%istence of inflation lin$ed financial securities pro,idesmar$et based measures of inflation e%pectation as a measure of hed&e a&ainst inflation ris$.Some "+"5"mer&in& +ar$et "conomies6 li$e Chile' Israel ha,e been able to de,elop an inflationlin$ed &o,ernment bond mar$et. The &o,ernment can de,elop a brea$ e,en rate #ith the follo#in&components built in it5i6"%pected inflation durin& the remainin& maturity period of the bonds05ii6inflation ris$ premium and 5iii6 li(uidity premium.

Inflation lin$ed bonds are one of the best #ays adopted by se,eral countries in the #orld to o,ercomethe inflation ris$. Inflation lin$ed bonds are re&arded as ris$ free asset of choice for a lon& term poolli$e a Superannuation fund.The rele,ance of an inflation lin$ed security or inflation deri,ati,es is hi&h in a country li$e India#here the inflation en 13.33 13.71 13.3 11.28 7. 7.2 7.E .33 7.

13 7.27 11.7 11.2 11.> 11.7 13.81 1.7

1? recently and this inflations spreads its hand on manufactured &oods

also5As per recent press release.6 Situation is #orryin& the &o,ernment. o,ernment announced that

)*I #ill ta$e correcti,e measures to control the inflation. The inflation is increasin& steadily at a

hi&her rate. It seems to be the &o,ernment is not seein& the situation in subtle and al#ays as$ )*I to

ta$e action. Also Food inflation


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ha,e made situation #orst. "ast Asians li$e Napan ha,e been hit hard due to collapse in

demand for manufactured products. India #ould also see se,ere drop in e%port earnin&s on

same footin&s but it #ould be able to maintain 1.8 to 2? &ro#th in 2EE7 #hich #ould

further rise to ? due to its domestic demand. In India' crisis can be cau&ht from short

supply of a&ricultural products due to ad,erse climate condition in 2EE!E #hich #as

multiplied by rise in population and their use as input in industrial production. This hadfactors initiated inflationary phase at hi&her rate in the economy

Inflation Tar*etin* the -orld

E2&OA&EAI!F#ATIO!&ATE

$ear @an Fe, %ar Apr %ay @un @ul Au* Sep Oct !ov "ec

2E11 2.3E 2.E

2E1E 1.EE E.7E 1.E 1.8E 1.>E 1.E 1.E 1.>E 1.E 1.7E 1.7E 2.2E

2EE7 1.1E 1.2E E.>E E.>E E.EE !E.1E !E.E !E.2E !E.3E !E.1E E.8E E.7E

2EE 3.2E 3.3E 3.>E 3.3E 3.E .EE .EE 3.E 3.>E 3.2E 2.1E 1.>E

The table abo,e displays the monthly a,era&e.

"uro area annual inflation #as 2.? in February 2E11' up from 2.3? in Nanuary. A year earlier the rate #as E.?. +onthly inflation

#as E.? in February 2E11. "@ annual inflation #as 2.? in February 2E11' unchan&ed compared #ith Nanuary. A year earlier the rate

#as 1.8?. +onthly inflation #as E.? in February 2E11.

In February 2E11' the lo#est annual rates #ere obser,ed in Ireland 5E.7?6' S#eden 51.2?6 and France 51.?6' and the hi&hest in

)omania 5.>?6' "stonia 58.8?6 and *ul&aria 5.>?6. Compared #ith Nanuary 2E11' annual inflation rose in fifteen +ember States'

remained stable in three and fell in ei&ht. The lo#est 12!month a,era&es up to February 2E11 #ere re&istered in Ireland 5!1.1?6'

=at,ia 5E.E?6 and the etherlands 51.2?6' and the hi&hest in )omania 5>.8?6' reece 58.E?6 and un&ary 5.?6.

The main components #ith the hi&hest annual rates in February 2E11 #ere transport 58.?6' housin& 5.7?6 and alcohol R tobacco

53.8?6' #hile the lo#est annual rates #ere obser,ed for clothin& 5!2.>?6' communications 5!E.?6 and recreation R culture 5E.E?6.

Concernin& the detailed sub!indices' fuels for transport 5E.>2 percenta&e points6' heatin& oil 5E.236' electricity 5E.116 and &as

5E.1E6 had the lar&est up#ard impacts on the headline rate' #hile &arments 5!E.286 and telecommunications 5!E.E76 had the bi&&est

do#n#ard impacts.

The main components #ith the hi&hest monthly rates #ere recreation R culture 5E.7?6' food' housin&' transport and hotels R


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restaurants 5all E.8?6' #hile the lo#est #ere clothin& 5!E.8?6' alcohol R tobacco 5E.E?6' health and education 5both E.1?6. In

particular' pac$a&e holidays 5E.E> percenta&e points6' accommodation ser,ices and heatin& oil 5E.E3 each6 had the lar&est up#ard

impacts' #hile &arments 5!E.E36' restaurants R cafUs and foot#ear 5!E.E2 each6 had the bi&&est do#n#ard impacts.

CA!A"AI!F#ATIO!&ATE

$ear @an Fe, %ar Apr %ay @un @ul Au* Sep Oct !ov "ec

2E11 2.3E 2.2E

2E1E 1.7E 1.>E 1.E 1.E 1.E 1.EE 1.E 1.E 1.7E 2.E 2.EE 2.E

2EE7 1.1E 1.E 1.2E E.E E.1E !E.3E !E.7E !E.E !E.7E E.1E 1.EE 1.3E2EE 2.2E 1.E 1.E 1.E 2.2E 3.1E 3.E 3.8E 3.E 2.>E 2.EE 1.2E

The table abo,e displays the monthly a,era&e

CanadaBs inflation rate rose 2.2? in the 12 months to February' follo#in& the 2.3? increase posted in Nanuary. "ner&y prices rose

1E.>? durin& the 12 months to February' after postin& a 7.E? increase the pre,ious month. asoline prices continued to increase in

February' risin& 18.?' after recordin& a 13.E? increase in the 12 months to Nanuary.

"%cludin& &asoline' the Consumer 4rice Inde% 5C4I6 rose 1.>? in the 12 months to February' compared #ith a 1.? increase in

Nanuary and also Shelter costs rose 2.2?.The lar&est increase occurred in the transportation component' #hereprices rose 8.1? in the 12 months to February' after a .? increase in Nanuary.

The *an$ of CanadaBs core inde% ad,anced E.7? in the 12 months to February' follo#in& a 1.? rise

in Nanuary. The seasonally ad


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China said inflation remained hi&h in February' fuelin& further doubt about the &o,ernmentBs ability to tac$le #hat officials ha,e called

their main economic priority this year. The consumer!price inde% in the #orldBs second!lar&est economy rose .7? in February from

the same month last year' the ational *ureau of Statistics said on +arch 11. Food prices alone rose 11 percent in February.

ChinaBs February economic data are distorted by the timin& of its =unar e# Vear holiday' #hich fell earlier in the month this year than

in 2E1E. The holiday' ChinaBs bi&&est of the year' alters spendin& patterns' especially for food' limitin& the ability of economists to

e%trapolate lon&er!term trends. ChinaBs producer price inde%' a measure of pipeline inflation pressures' rose .2? from a year earlier' up

from NanuaryBs >.>? rise and hi&her than e%pectations for a ? rise.

I!"IA vs C+I!A

+a$in& an in depth study and analysis of India ,s. China economy seems to be a ,ery hard tas$. *oth India and China

ran$ amon& the front runners of &lobal economy and are amon& the #orldBs most di,erse nations. *oth the countries #ere

amon& the most ancient ci,ili9ations and their economies are influenced by a number of social' political' economic and

other factors. o#e,er' if #e try to properly understand the ,arious economic and mar$et trends and features of the t#o

countries' #e can ma$e a comparison bet#een Indian and Chinese economy.

oin& by the basic facts' the economy of China is more de,eloped than that of India. -hile India is the 11th lar&est

economy in terms of the e%chan&e rates' China occupies the second position surpassin& Napan. Compared to the estimated

O1.3123 trillion D4 of India' China has an a,era&e D4 of around O7E7.2 billion. In case of per capital D4' India

la&s far behind China #ith E?

4er capital D4 O112 O'81

Inflation . ? 8.1?

=abor Force > million 13.8 million

@nemployment 7. ? .2E ?

Fiscal Deficit 8.8? 21.8?

Forei&n Direct In,estment O12.E O7. billion

old )eser,es 18? 11?

Forei&n "%chan&e )eser,es O2.1 billion O2.>8 trillion

-orld 4rosperity Inde% Th 4osition 8th 4osition

If #e ma$e the analysis of the India ,s. China economy' #e can see that there are a number of factors that has made China

a better economy than India. And that can be the reason #hy inflation rate in India is hi&her as compared to china.


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52833515 indian financial system project

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