Indian Economy Part 5 - Concepts of Micro Economics for UPSC / SSC / RBI / RRB / NABARD Video Lecture | Indian Economy for Government Exams (Hindi) - Bank Exams

[Music]
[Applause]
hello friends welcome to study IQ let us
continue our discussion on inflation for
those who have missed the previous
videos on inflation please go back to
the previous videos on inflation and
then come back to this topic so that
there will be a clear understanding of
what we learned today in this session so
today let us start with the measurement
of inflation in India we have index to
measure the inflation we have indices or
index to measure inflation
when we say index or index what does it
mean we have many indexes example Sensex
nifty when it comes to inflation we have
wholesale price index consumer price
index etc so let us learn about this
indices price index what is a price
index price index is simply the average
of certain items or commodities so it is
average of commodities let us see how is
an index created to understand that we
should know what is a base here
base here refers to a normal year
without much fluctuations in without
much fluctuations in the price base here
is taken in order to compare the prices
so the purpose of bézier is to compare
the prices with the present year we also
have a current year in which we take the
prices of the press india so let us see
how is an index created so we know the
current year price we also know the base
year price so if we know the current air
price and the base year price it's very
easy to create an index let us see how
so price index equal to current air
price divided by base year price so that
is currently a price divided by base
year price gives you price index so from
this price index how way we calculate
the inflation rate let us see so
inflation rate is calculated from this
index so inflation rate equal to the
current year price index minus the
previous year price index
/ the previous year price index in 200
so we know how to create a price index
so we can create a price index for the
current year as well as for the previous
year so how do you create a price index
price index needs currently a price /
base year price and how to create the
price index of the previous year that is
previous year price divided by the base
year price into price index of the
previous year s previous year price
divided by the price of the base year so
if you can get the price indices of the
current year and the previous year we
can calculate the inflation rate by
deducting the price index of the
previous year from the current they are
divided by the previous year price index
in 200 let us quickly recap so what is a
price index price index means the
average of certain items so it is an
average house price index calculated
price index is calculated by dividing
currently a price divided by the base
year price and what is a base here base
year means a normal year without much
fluctuations in the price and if you
know the price index of current air and
the previous year you can calculate the
inflation rate so inflation rate equal
to current year price index minus
previous year price index divided by
previous year price index into 100 hope
this is clear for you now let us discuss
about another concept that is the base
effect to understand the concept of base
effect let us take an example the price
of onion let us take the price of onion
in the year 2000 2015 2016 and 2017
assume that the price of onion in 2000
was rupees 12 in 2015 the price was 20
rupees in 2016 the price jumped up to 80
rupees and in 2000
17 the price is 76 rupees so now here we
will see that from 2000 to 2015 that is
in the margin of 15 years the price has
gone up by 8 rupees but in 2016 there
was a sudden jump from rupees 20 to 80
that means it has inflated many a times
and there is a difference of 60 rupees
and in 2017 comparing to the price in
2016 the price has come down by rupees 4
so can we say that there is no inflation
in the economy or the rate of inflation
in the economy has come down if we
consider only the price in 2016 we would
say that the rate of inflation has come
down or the price of the onion has come
down but if we take the examples or if
we take the prices of the many years
previously we will understand that there
is high inflation even in 2017 comparing
to their different previous years but
when we consider only the last year or
the 2016 Vianne
we will get a we will assume that the
inflation has come down but it is not
but that is not the reality so this is
known as the base effect and this will
be and the change in price in 2016 and
17 is known as high base effect because
in 2016 the price was so high and we are
comparing the prices in 2017 with that
of 16 we feel that the wage has come
down but if we consider with many years
previously we will understand that sale
the price of onion is high and still the
F price is highly inflated in the
economy so this is known as the base
effect so now coming back to
measurements of inflation we have two
measurements of inflation oneness the
WPI and the second one is the CPI so
what is WPI it refers to wholesale price
index when CP refers to consumer price
index wpa wpa2 is the rate of inflation
the wholesale level and CPI calculate
the rate of inflation at the consumer
level or the retail level WPI in the
wholesale level and CPI in the consumer
level or the retail retail level and
that is a reason WPI is also known as
wholesale inflation and CPI is also
known as retail inflation in newspapers
you will sometimes see retail inflation
has increased by this percentage and
wholesale inflation has decreased or
increased by so many percentage so that
is wholesale inflation and retail
inflation and next we will see the base
here the base year of WPI or the
wholesale price indexes 2011-12 and CPI
is 2012 here you will see that in case
of wholesale price index a financial
year is taken as the base year and in
case of CPI or the Consumer Price Index
a normal year is taken as the base year
of CPI that this financial year will be
starting from April 1st to March 31st
and a normal year are normally er so in
case of WPI it is a financial a er and
in case of CPI its a normal year both
the WPI and CPI are calculated on a
monthly basis monthly basis the most
important difference between the WPI and
the CP is that WPI takes into
consideration only the prices of goods
only goods but CPI takes into
consideration goods and services the
prices of both goods and services but
here only goods in wpm it's only the
prices of the goods CPI is used for the
calculation of dearness allowance you
must remember this point they are mass
elements of employees are calculated on
the basis of CPI WPA has six hundred and
seventy six commodities in their basket
676 commodities and this commodities are
divided into three
three groups three groups namely primary
articles fuel and power manufacture
items let us see what are the weightages
given to this groups so groups number of
items and weighted so number of items in
the primary articles are 102 fuel and
power nine commodities and 555 in the
manufactured items totally 676
commodities and the weight is given to
this commodities let us see primary
articles 20.2 percentage fuel and power
fourteen point nine one percentage and
manufacture lighters sixty-four point
nine seven percentage total 100 so here
you must understand that way ditch here
means importance importance and taking
commodities from the first group that is
the primary articles and the third group
that is manufactured items which
constitute four items will contribute
twenty four point three percentage the
weightages twenty four point three
percentage so when we take commodities
from first and third group which are of
food items the by Aegis twenty four
point three percentage and when it comes
to CPI there are four group of consumers
let us see which are the four groups of
consumers in CPI they are CPI for
Industrial Workers CPI for agricultural
laborers CPI for urban non-manual
employees and CPI for rural laborers the
first one CPI for industrial workers
this is estimated by the Labor Bureau
CPI for agricultural laborers so CPA for
agricultural laborers is used for the
fixation of minimum wages by various
states and this is also used for the
fixation of wages in Mahatma Gandhi
National Rural Employment Guarantee Act
M energy so CPI for agree
cultural Abra's are used for the
estimation of wages under and
menorrhagia
as well as for the minimum wages by
different state governments next is CPI
you NME are Arbonne on manual employees
this is used by certain MN C's in fixing
de dearness allowance for their
employees
next is CPI rural Abra's this is used by
certain states along with 3 PIL
that is agricultural laborers for the
revision of minimum wages in their
states
next is producers Price Index this
measures the rate of inflation from the
perspective of producers so with the PPI
or the producers Price Index we can
estimate the rate of inflation till the
production stage so it means that it
does not take into account the inflation
during the distribution states that this
traders profit transportation cost etc
it will not take into consideration so
now let us discuss about the committee
to revise and strengthen the monetary
policy framework in India committee to
revise and strengthen the monetary
policy framework the committee had given
its recommendations in the year 2014
January the committee was chaired by dr.
Ajit Patel the present governor of the
RBI and the then deputy governor of the
RBA let us see what were the important
recommendations given by this committee
the first important recommendation given
by this committee was that the RBA
should replace WPI with CPI as a nominal
anchor for measuring the inflation or as
a nominal anchor for monetary policy
that is replace WPI with cpa why because
WPI as we discussed does not consider
services only goods are taken care WPI
also most of the developed countries has
shifted to CPI and also CPL measures the
impact of inflation directly on the
people so this was an ideal so CP would
be an ideal measurement
of inflation and this recommendation was
accepted by the government
the second recommendation given by the
committee was that the RBA should
endeavour to maintain the rate of
inflation at plus or minus 4 percentage
that is 2 to 6 percentage the RBA must
strive to maintain the rate of inflation
within 2 to 6 percentage the next
recommendation given by the committee
was that the RBI should adopt inflation
targeting what is meant by inflation
targeting under inflation targeting the
central bank of an economy so in case of
India the Reserve Bank of India the
central bank of an economy should
announce an optimum range or rate of
inflation and it must endeavor to
maintain the inflation within that
limits so the central bank of an economy
should announce a rate or a range within
which it should be able to control the
inflation in the economy it also means
that the central bank or the RBA must
give primary importance to the control
of inflation so the primary focus must
be on controlling inflation in the
economy the focus of any central bank
would be to maintain a balance between
growth and inflation control in order to
increase the growth in the economy the
money supply in the economy should
increase but in order to control the
inflation the money supply should come
down so there is a dilemma between these
two objectives so this is known as
monetary policy dilemma
so monetary policy dilemma monetary
policy dilemma says that the central
bank of an economy has to maintain a
balance between growth and inflation and
the primary focus should be on
maintaining this balance the next
recommendation of this committee was to
abolish the statutory liquidity ratio as
he does he outlived its utility you will
understand this when you learn about the
Basel lumps so Basel norms we will
discuss later when we learn banking so
Basel norms has
called capital adequacy ratio so SLR
means what is a seller a seller is a
percentage of total deposit bank has to
keep with itself
ciara or the capital adequacy ratio is
also a similar concept which we will
learn in your banking module and when
you learn to base alums we will explain
this later the next recommendation was
the RBA should conduct bimonthly reviews
of monetary policy instead of quarterly
reviews so bimonthly review of monetary
policy this was also an accepted
recommendation the next important
recommendation of this committee was to
introduce long term or apos so we have
learned in the evaporate that repos
halfa shorter period so this committee
recommended the introduction of long
term read post in the economy the next
recommendation of this committee was
that the government should reduce the
fiscal deficit to three percentage by
the year 2016-17 if you know goddess FRB
ma you know that FRP ma also recommends
three percentage as the fiscal deficit
of the government we will learn about
the FRB ma later the next and the most
important recommendation of this
committee was the constitution of a
monetary policy committee monetary
policy committee is important from any
examination point of view so let us say
let us see monetary policy committee in
detail monetary policy committee was set
up by the Finance Act
2016 by amending the RBI Act of 1934
under the Finance Act 2016 the monetary
policy committee has given a statutory
status so monetary policy committees is
a statutory body under the Finance Act
of 2016
Finance Act 2016 has amended the RBI act
or the Reserve Bank of India Act of 1934
you must remember this point the main
objectives of the monetary policy
committee is to set benchmark rates of
interest and also to make the inflation
targeting the Government of India
fixes the benchmark rates and
the inflation targeting in consultation
with the RBI or with the monetary policy
committee let us see what is the
composition of this monetary policy
committee so MPC consists of six members
out of which three are from the RBI and
three from the government the chairman
of this committee is the governor of the
RBI in the MPC every member has one note
each so in case of a tie the governor of
the RBA that is a chairman of this
committee has a quote the composition of
the monetary policy committee is also
very very important the decisions of the
monetary policy committee will be on the
basis of voting with each member having
one note and in case of a tie the
governor will exercise a would the
minutes of the Proceedings of the
monetary policy committee will be
released to the public with the time lag
of 14 days and this will ensure
transparency and accountability we must
understand that most of the developed
countries has adopted this monetary
policy committee the next recommendation
of this committee was to introduce depth
management office debt management office
for the management of public debt so the
committee to revise and strengthen the
monetary policy framework is a very
important committee from any examination
point of view as most of the
recommendations of this committee was
accepted by the government and this
committee is chaired by
uijik patel the present governor of RBI
and then he was the deputy governor of
the Reserve Bank of India so this is a
very very important committee and you
must remember the important points in
this committee especially the monetary
policy committee framework
[Music]
[Applause]
you