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GLOBALISATIONGLOBALISATION&&

INFLATIONINFLATION

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GLOBALISATION IS A PROCESSGLOBALISATION IS A PROCESSOF INTEGRATION OF THE WORLDOF INTEGRATION OF THE WORLD

INTO A SINGLE HUGE MARKETINTO A SINGLE HUGE MARKET ..

DEFINITIONDEFINITION

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IMPACTS OF GLOBALISATIONIMPACTS OF GLOBALISATION

CONCEPT OF 5 CsCONCEPT OF 5 Cs

Customer Customer

CompetitionCompetition

CurrencyCurrency

CompanyCompany

CountryCountry

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DEFINITIONDEFINITION

The term "inflation" usually refers toThe term "inflation" usually refers toa measured rise in a broad pricea measured rise in a broad priceindex that represents the overallindex that represents the overalllevel of prices in goods and serviceslevel of prices in goods and servicesin the economy.in the economy.

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WHAT INFLATION TELLSWHAT INFLATION TELLS ??INFLATIONINFLATION tells us two important things :-tells us two important things :-FirstlyFirstly : Do not keep your money stagnant. If you just save: Do not keep your money stagnant. If you just savemoney by putting it your safe it will loose value over time.money by putting it your safe it will loose value over time.If you have Rs.1000 in your safe today and you keep itIf you have Rs.1000 in your safe today and you keep itthere for 10years or so, it will be worth a lot less after 10there for 10years or so, it will be worth a lot less after 10years. If you can buy something for Rs.1000 today, you willyears. If you can buy something for Rs.1000 today, you willprobably require Rs.1500 to buy it 10 years from now. Soprobably require Rs.1500 to buy it 10 years from now. Sodo not keep money locked up in your safe.do not keep money locked up in your safe.Always invest money.Always invest money.If you cant think where to invest your money, then put itIf you cant think where to invest your money, then put itin a bank. Let it grow by gaining interest. But whatever youin a bank. Let it grow by gaining interest. But whatever youdo, do not just lock your money up in your safe and keep itdo, do not just lock your money up in your safe and keep itstagnant. If you do this, you will be loosing money withoutstagnant. If you do this, you will be loosing money without

even knowing it. The more money you keep stagnant theeven knowing it. The more money you keep stagnant themore money you will be loosing.more money you will be loosing.

SecondlySecondly : When investing, you have to make sure that: When investing, you have to make sure thatth e rate of return on your investment is higher than thethe rate of return on your investment is higher than therate of inflationrate of inflation

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What is the rate of inflationWhat is the rate of inflation ??Current rate of inflation is 0.044%Current rate of inflation is 0.044%The prices of everything goes up over time and this phenomenonThe prices of everything goes up over time and this phenomenonis calledis called inflationinflation ..The question is: By how much do the prices go up? At what rateThe question is: By how much do the prices go up? At what ratedo the prices do up?do the prices do up?

The rate at which the prices of everything go up is called theThe rate at which the prices of everything go up is called the"rate of inflation". For example, if the price of something is"rate of inflation". For example, if the price of something isRs.100 this year and next year the price becomes approximatelyRs.100 this year and next year the price becomes approximatelyRs.104 then the rate of inflation is 4%. If the price of somethingRs.104 then the rate of inflation is 4%. If the price of somethingis Rs.80 then after a year with a rate of inflation of 4% the priceis Rs.80 then after a year with a rate of inflation of 4% the pricego up to (80 x 1.04) = 83.2go up to (80 x 1.04) = 83.2

So, when you make an investment, make sure that your rate of So, when you make an investment, make sure that your rate of return on the investment is higher than the rate of inflation inreturn on the investment is higher than the rate of inflation inyour country.your country.

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CAUSES OF INFLATIONCAUSES OF INFLATION

The main cause of high inflation in India used to beThe main cause of high inflation in India used to berises in global oil prices.rises in global oil prices.The chief component of the inflation was the increaseThe chief component of the inflation was the increase

in the prices of food articles - caused by increasedin the prices of food articles - caused by increaseddemand as well as supply constraints.demand as well as supply constraints.Apart from the rise in prices of food articles, fuel andApart from the rise in prices of food articles, fuel andcement prices too recorded high increasescement prices too recorded high increases

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MEASURES OF CONTROLLINGMEASURES OF CONTROLLINGINFLATIONINFLATION

MONETARY POLICYMONETARY POLICY :- Today the primary tool:- Today the primary toolfor controlling inflation is monetary policy. Highfor controlling inflation is monetary policy. Highinterest ratesinterest rates and slow growth of the moneyand slow growth of the moneysupply are the traditional ways through whichsupply are the traditional ways through whichcentral banks fight or prevent inflation.central banks fight or prevent inflation.Fixed exchange rates :Fixed exchang e rates : - Under a fixed exchange- Under a fixed exchangerate currency regime, a country's currency israte currency regime, a country's currency istied in value to another single currency or to atied in value to another single currency or to abasket of other .A fixed exchange rate isbasket of other .A fixed exchange rate isusually used to stabilize the value of ausually used to stabilize the value of acurrency, vis-a-vis the currency it is pegged to.currency, vis-a-vis the currency it is pegged to.It can also be used as a means to controlIt can also be used as a means to controlinflation.inflation.

http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_rate

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Wage and price controlsWag e and price controls :-Another method:-Another methodattempted in the past have been wage andattempted in the past have been wage and

price controls ("incomes policies). price controls ("incomes policies).

Gold standard:-Gold standard:- Gold was a common form of Gold was a common form of representative money due to its rarity,representative money due to its rarity,durability, divisibility,durability, divisibility, fungibilityfung ibility , and ease of , and ease of

identification.Representative money and theidentification.Representative money and thegold standard were used to protect citizensgold standard were used to protect citizensfromfrom hyperinflationhy perinflation ..

http://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Fungibility

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MEASURES BY R.B.IMEASURES BY R.B.I

These measures included:- increasing repoThese measures included:- increasing reporates, the Cash Reserve Ratio (CRR) andrates, the Cash Reserve Ratio (CRR) andreducing the rate of interest on cash depositedreducing the rate of interest on cash deposited

by banks with the RBI. by banks with the RBI.

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FISCAL STIMULUSFISCAL STIMULUS

PACKAGESPACKAGES

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11 stst Stimulus package came out on 7Stimulus package came out on 7 thth Dec 08Dec 08

Its featuresIts featuresIncrease in govt spendingsIncrease in govt spendings

ExportersExporters

Support for medium,small&micro enterprisesSupport for medium,small&micro enterprises

Textile sector Textile sector

Infrastructure financingInfrastructure financing

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22ndnd Stimulus package on 2Stimulus package on 2 ndnd jan 09 jan 09

ITS MEASURESITS MEASURESIIFCLIIFCL

INTEREST RATE CUTSINTEREST RATE CUTSECB LIMITSECB LIMITSCVDSCVDS

FIIS IN DEBT MARKETSFIIS IN DEBT MARKETSSMESMESTATE GOVTSSTATE GOVTS

PUBLIC SECTOR BANKSPUBLIC SECTOR BANKS

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EFFECTS OF INFLATION ONEFFECTS OF INFLATION ONECONOMYECONOMY

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Inflation is good for economy..Inflation is good for economy.. because the price gets higher because the price gets higher sales gets better...sales gets better... In short:In short:INFLATION IS GOOD FOR COMPANIESINFLATION IS GOOD FOR COMPANIESAND BAD FOR CUSTOMERS..AND BAD FOR CUSTOMERS..

but Inflation above 4% mark ,make ....people to reduce their but Inflation above 4% mark ,make ....people to reduce their

spending on luxcury items..spending on luxcury items..this is what worries the branded companies,this is what worries the branded companies, but for the poor, and those who are in the job... but for the poor, and those who are in the job...they suffer because they cannot save much....they suffer because they cannot save much....some times they have to go for loan, to make their ends meetsome times they have to go for loan, to make their ends meeton intereston interestwhich makes things worst for them.which makes things worst for them.

So the effect of inflation is a mixed one.........So the effect of inflation is a mixed one.........Double digit inflation over a period of six months is veryDouble digit inflation over a period of six months is very

bad. bad.

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POSITIVE IMPACTPOSITIVE IMPACT

A small increase in price level is considered to beA small increase in price level is considered to be beneficial for the economy. Inflation generally beneficial for the economy. Inflation generallyincreases the price level gradually over time. Whenincreases the price level gradually over time. When

price starts increasing, the consumers may opt for price starts increasing, the consumers may opt for

making purchases at present time, out of the fear of making purchases at present time, out of the fear of further increase in price level in future. This tendencyfurther increase in price level in future. This tendencyof the buyers increases the spending and borrowingof the buyers increases the spending and borrowingactivities in the short term period. It providesactivities in the short term period. It providesadditional mobility to the economic performance of additional mobility to the economic performance of the economy.the economy.

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NEGATIVE IMPACTS NEGATIVE IMPACTS

Bad for fixed income group peopleBad for fixed income group people

Impact on Household Sector Impact on Household Sector

Impact on Business Sector Impact on Business Sector Impact on Debtors and CreditorsImpact on Debtors and Creditors

Impact on GovtImpact on Govt

Affects purchasing power Affects purchasing power

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IMPACT OF GLOBALISATION ONIMPACT OF GLOBALISATION ONINFLATIONINFLATION

Policy Incentives:Policy Incentives:

Trade Integration & Price Level Declines:Trade Integration & Price Level Declines:

Inflation responses to domestic OutputInflation responses to domestic OutputFluctuationsFluctuations

Productivity Growth, Aggregate supplyProductivity Growth, Aggregate supply&Relative Prices:&Relative Prices:

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GROUP MEMBERSGROUP MEMBERS

AMIT SHIRALE (32)AMIT SHIRALE (32)GAURAV HIRANI(30)GAURAV HIRANI(30)

INDRAJEET (29)INDRAJEET (29)NAFISA MULLA (25)NAFISA MULLA (25)PRIYA SWAMI (52)PRIYA SWAMI (52)

ASHA PUJARI (23)ASHA PUJARI (23)