Gdp Deflator

GDP DEFLATOR ANALYSIS

* Inflation started increasing after 2004-05, however, it is still not close to the pre-1994-95 phase. Inflation rates’ volatility reduced sharply after the mid-1980s. It remained low thereafter except for brief period.

* In the 1960s and the 1970s, the averages rates of inflation and volatility were quite high.

* In contrast, we see lower volatility with relatively higher average inflation in the 1980s. A reverse trend is observed in 1995-96, when inflation started moving down but volatility increased.

* High inflation in India has been a combination of three factors: poor agricultural productivity and high dependence on monsoon; commodity price shocks, mainly oil prices; global business cycles and wars.

* Volatility deters private investment, and also affects inflation expectations. Considering that majority of the population in India is relatively poor, double digit food inflation and high inflation in general hits the poorest and weakest sections the hardest.

Decade wise inflation trends:

Decade | Inflation |

| Mean | Standard Deviation |

1950-60 | 1.4418 | 6.24932 |

1960-70 | 6.3209 | 3.62328 |

1970-80 | 8.0382 | 6.844 |

1980-90 | 8.688 | 1.4908 |

1990-00 | 8.7224 | 2.8522 |

2000-10 | 5.1514 | 1.7121 |

2010-14 | 7.9027 | 1.0138 |

* Deflation of 1952-53 is mainly attributed to the higher agricultural production in that year, whereas high inflation of 1956-57 was mainly due to demand pressures, particularly investment demand in the light of the thrust on industrialization in the second five-year plan.

* Inflation accelerated during the 1960s partly induced by the two wars in 1962 and 1965 and the crop failure of 1965-66 when agricultural production fell by more than 16 per cent. High inflation during these two years can largely be attributed to impact of the Pakistan war in 1965 and the famine experienced during 1965-66.

* Price changes were low in 1968-69 as a result of bumper...