Wat the >7.57% inflation means for Economy - BComs HELP !!

[CATastrophe_sam]

Hey guys,
Anyone wanna share some insights into the Present inflation *rate at >7.57 %
How do u think it's gonna affect the Economy - BCom Guys - share some brains plz

And any idea why the RBI stepped into on the Shoes of the GTB junta.

Lets keep the knowledge floating
thanks,
sam

[CATastrophe_sam]

Hey guys,
Common - i'm here in Pune - punekars - can we have a knowledge sharing DB please.
Also can anyone tell me what an Investment Banker is S'pposed to do ?

Anyone from PT Pune or CL hyderabad - Please respond - guess Sanket sir or VK sir can link us both

Adios,
sam

[Hobbes]

U will prolly get more response to this thread if u name the topic properly.

[misha]

Originally Posted by CATastrophe_sam @ Tue Sep 28, 2004 4:55 pm

Hey guys,
Anyone wanna share some insights into the Present inflation *rate at >7.57 %
How do u think it's gonna affect the Economy - BCom Guys - share some brains plz

And any idea why the RBI stepped into on the Shoes of the GTB junta.

Lets keep the knowledge floating
thanks,
sam

hey sam GTB had high non-performing assets, so to save it from drowning RBI had to step in. This is all i know.....wasnt able to understand much from the Business news.....m an engineering grad.

[shrikanthk]

The inflation is partly induced by external factors like high crude & high commodity prices.It can also be attributed to some of the govt's budget proposals like the hike in service tax.Moderate inflation is not bad for the economy as it is indicative of robust economic growth.But at current levels,it causes alarm as it might stifle demand and keep us from maintaining 6-7% gdp growth.The banks might respond by hiking interest rates in order to curb liquidity,which in turn will further stifle demand and dampen growth.Another option would be to opt for a strong rupee,thereby making imports cheaper.
Btw *, as catastrophe said, the comm & iim grads in pg can enlighten us more,since we engineers are bound to come up with amateurish analyses. For instance, crude is near an all time high even in the US,but yet the inflation has not gone out of hand there.How does one account for such discrepancies?And aren't we deploying our forex reserves to finance costly crude imports?If no,why not?Such questions might seem puerile for an iim grad.But it's never too late to learn,i guess.

[CATastrophe_sam]

Hey Srikanth,
That was neat searching on Google man - but i was hoping if you could enlighten me on what it would 'lead' to .
Me too engineer and so have almost no clue as to all this so was wondering if someone could help me out

Thanks for the info anyway,
sam

[Wayne]

Originally Posted by CATastrophe_sam @ Tue Sep 28, 2004 9:39 pm

Hey Srikanth,
That was neat searching on Google man - but i was hoping if you could enlighten me on what it would 'lead' to .
Me too engineer and so have almost no clue as to all this so was wondering if someone could help me out

Thanks for the info anyway,
sam

Well Me a Commerce Grad . About Inflation...........this is a Good article on Inflation in a recent issue of Business Today. Explains the Concept in Simple terms and is quite easy to understand.

Source: Business Today www.businesstoday.com. Issue Dated August 29,2004

On Slippery Ground
The latest data on inflation for the week ended July 24 has caught most people by surprise. As recently as May, when the Reserve Bank of India presented its credit policy, inflation for the year was projected at 5 per cent. Now, it turns out, prices have been galloping since. Prices of the 435 commodities that make up the Wholesale Price Index (WPI) have jumped 7.51 per cent, a three-and-a-half-year high, compared to a 6.52 per cent increase a week earlier. What's behind the sharp jump (it's not usual for inflation rates to soar a whole percentage point in a matter of seven days)? A blend of factors, both domestic and global. Poor rains in most parts of India have pushed up prices of food commodities, besides which crude oil prices have been clipping. The latter may have played a bigger role, simply because it affects the prices of everything-from manufactured goods, which make up 64 per cent of the WPI, to food products.
What does a vastly higher rate of inflation mean for the economy? If you've been watching key indicators such as the stockmarket and the money market, you would have figured out the answer by now, and which is that both manufacturers and consumers, not to mention equity investors, hate high rates of inflation. The consumer bit is easily understood. For industry, higher rates of inflation mean that interest rates will, sooner than later, go up. It's a no-brainer what more expensive debt means to companies: the cost of their investment goes up, making it harder for them to earn profits on those investments. The only way they can ensure profitability of their new expensive investment is by pricing their products higher, but the problem in doing so is that it only further fuels inflation. In such situations, therefore, industry reacts in a typical way: it simply withholds fresh investment.

Things get a little tricky hereafter. To curb inflation, central banks usually increase the rate of interest. The logic being that more expensive capital will discourage its offtake and hence restrict supply of money into the system. You don't have to be a genius to figure out what happens when there's less of money and more of goods and services in the marketplace. As the law of supply and demand dictates, the prices of the latter set must come down. But here's the problem as far as the Indian economy is concerned: banks are already sitting on a pile of cash, and the demand from industry is at best modest. If the RBI were to increase the rate of interest at this juncture, it runs the risk of stifling whatever little investment-and the resultant job creation and growth-that is taking place at the moment. No doubt for that reason, the central bank has said that it is in no hurry to hike interest rates (never mind that it will hurt small investors who park their money in fixed income securities).

Where does that leave the economy? If rains elude the remaining two months of the monsoon season, agricultural production will almost certainly take a knock. In fact, a report by CRISIL indicates that agricultural production will shrink by 2.5 per cent this year, although industry and services are expected to grow 6.8 per cent and 8.4 per cent, respectively. Overall, the GDP is expected to grow only 5.6 per cent against the government's projection of 6.5 to 7 per cent. Could things get worse than that? Unlikely, but don't bet on it. For one, oil prices, up 37 per cent so far this year, are showing no signs of cooling off. On the contrary, it may touch $50 a barrel by the end of this year. A modest rate of inflation (like the 3 to 4.5 per cent we've had the past two years or so) is actually good for the economy, since it allows relative adjustment of prices, but a runaway inflation can do a lot of damage. The latest inflation data does not suggest any imminent danger to the economy. However, it's quite apparent that it is out of its comfort zone.

[CATastrophe_sam]

Aw common Misha,
I know we engg gotta stck together - but u wanna be a future Engg right ?
So don't parry. try to get the details and only then answer -
I think u are being very unfair by writing GTB had NPA's and RBI stepped in - that's not even an answer - u are stating the fact.
No offence lady , but if u are lookign to manage a a big business tomorrow - know what comes out of your mouth - u can end up losing your credibility.

I'm sorry if i'm being 2 harsh - i am being a pig i know but i just don't want you to reply in such a non chalant attitude. There's no harm in saying i don't know someone help me -

Sorry for the indiscreet caricature,
Sincere regards,
sam

[misha]

so tell me if you know sam

[CATastrophe_sam]

Hey common Misha,
If i knew i wouldn't be askg right !!

anyway i said i'm sorry and next time watch wat u wrote here cause as i said - no one will take u seriously later if u aren't precise on what is asked


Adios,
sam