Inflation : Structural or MonetaryCauses?

• Monetary Inflation: Sustained increase in the money supply of a country.

• Structural Inflation: Strongly influenced by Govt’smonetary policy and economic structure.

• Inflation in India is more structural than monetary.• India’s economy is dotted by structural imbalances in

various sectors.• Major sectors contributing to inflation are Agriculture,

Manufacturing,services and Fuel.• Bottleneck in supply side ,slump in production,decline

in agriculture growth are all major causes for inflation in india.

• The graph shows a very high correlation between repo rate and growth in WPI and IIP.

• As per the graph, the constant rise in rates has been adversely affecting the industry as the cost of borrowing has increased, investments have dried up and profit margins have taken a hit.

In the case of food inflation, as the repo rate is increasing, the growth rate also is increasing.

• Major Contributor to food Inflation is protein rich foods like milk, pulses, eggs, fish etc.

Impact of FDI : Structural/InstitutionalInclusion of 51% foreign direct investment in multi-brand retail

• Attract global supermarkets, such as Walmart, Tesco and Carrefour (Min FDI

- $100 million (Rs 450 crore)

Impact Urban RetailMarket

Rural Retail Market Local SmallRetailer

Local Big Retailer

Supply Chain Localized

• IncreasedCompetitiveness

• Product Differentiation

• Price Wars

• Increased Penetration of Markets

• Backward and Forward Linkages to Kirana Shops, Local Farmers, Local Stores in Villages

• Harder to Compete

• Sales Based on-Convenience-CompetitivePricing

• Harder to Compete

• Impetus to innovate

• Brand War eminent

Job Creation / Offset

• Training Institutes & other ancillaries

• Employment for Middle / Upper Class

• Offset : Medium Size Retailer

• Agriculture best practices• Transportation &

Administrative Jobs• Offset : Local

Supermarket store will face severe competition

• Indirectcompetition –minimal impact

• Directcompetition –impact eminent

• Survival of the fittest

Warehousing / PDS

• Inclusion of multi brand stores will lead to localizing the supply chain & pds system will be impacted parallelly, adding best practices for supply chain management

IMPACT of FDI : Inflation Rate

Investment by Multi Brand

Outlets

Increased Competition

Organized Supply Chain

Job CreationIncreased

Disposable Income

Increased Consumption

Inflation Decrease

Source : India Retail Report 2011

SIMPLISTIC VIEW OF IMPACT OF INFLATION

Reduced Waste

Middle Man Cut Out

Increased Income Of Farmers

Offset of Existing

Distributors

Producer Prices in India increased 1.77 percent in October of 2014 over the same month in the previous year. Producer Prices Change in India averaged 7.66 Percent from 1969 until 2014, reaching an all time high of 34.68 Percentin September of 1974 and a record low of -11.31 Percent in May of 1976. Producer Prices Change in India is reported by the Office of the Economic Advisor, India.