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Indian Economic Policy

Notes
Inflation, Disinflation and Deflation in India
Looking at the Indian data, the weekly rate of inflation (based on WPI) had shot up to 13.1% in the 2 nd
week of August 2008 - the highest rate of inflation during the past 16 years - and the annual inflation
rate had gone up to 12.81% in 2008. This was a matter of great concern for both the MOF and the RBI.
Thereafter, however, inflation rate started declining setting a disinflationary trend. In the 2nd week of
September 2008 inflation rate declined to 12.14%. Over the following period of three months, inflation
rate had sharply declined to 6.61% in the 2 week of December 2008 due mainly to the recession in
nd
the economy caused by the impact of global recession. This decline in the inflation rate was, in fact,
disinflation. The disinflationary trend continued and inflation rate declined to 0.13% in the last
week of May 2009, i.e., inflation rate had fallen to a near-zero level. The price level continued to
decline and fell to - 1.61% in the first week of June 2009 and -1.31% in the last week of June. This
marked a situation of deflation in India.
9.5 Inflation in India : A Long-Term View

The historical record of inflation in India is given in Table 3. As the table shows, India has had
inflation almost continuously over a period of six decades, though the rate of inflation has been
changing - sometimes low, sometimes high - and in some years there was deflation. The inflation rate
during the First Plan period (1951-56) was very low (1.5%), rather insignificant. But, the price rise
picked up during the Second Plan period (1955-56 to 1960-61) when prices had increased at the rate
of 6.3 percent per annum. As can be seen in Table 9.4 the five-year average rate of inflation in India
remained limited to one digit during most of the period of the past five decades, except, of course, in
1970s. It was only during the first half of 1970s and the first half of 1990s that the rate of inflation had
crossed one-digit rate.
Table 3 : Annual Average Rate of Inflation in India : 1960-2001
(Base : 1993-94 = 100)

Period 52-week annual Point to Point
average (March end)

1950-51 to 1955-56* 1.5 ---
1956-56 to 1960-61 6.3 5.2
1961-62 to 1965-66 5.8 5.9
1966-67 to 1970-71 6.7 5.7
1971-72 to 1975-76 12.0 10.8
1976-77 to 1980-81 8.5 11.0
1981-82 to 1985-86 6.5 5.5
1986-87 to 1990-91 7.8 8.5
1991-92 to 1995-96 10.6 9.3
1096-97 to 2000-01 5.0 5.3

* Figures taken from CMIE, Basic Statistics Relating to the Indian Economy, 1994,
Source : Economic Survey—2001—2002, Ministry of Finance, Government of India, p.111.

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