Answers to shout-box queries-15

29 Sep 07, 22:15
jasmeet singh: Sir, what is core inflation and how is it different from WPI (in india),? is there any specific index to measure core inflation in india?

Core inflation is a measure of inflation which excludes certain items that face volatile price movements. Example fuel prices. In many countries, fuel prices see wide fluctuations. Hence they are excluded from the computations of core inflation. When they are included it is called headline inflation. WPI is just an index. It by itself is not inflation. An increase in the index represents inflation.

I give below an excerpt from our RBI Governor's speech in June 2006 about why we don't consider core inflation in our inflation calculus:

"Finally, let me also respond to Professor Jacob Frenkel who raised the general issue of focussing on the core-inflation in policy and not the headline inflation in spite of persistence of high oil prices for a long period. In India, we could not consider core-inflation for several reasons, especially because the two major sources of supply shock, food and fuel, account for a large share of the index. In our case, pass through of higher oil prices has been halting and not full. Thus, the headline inflation in our country in a way understates the problem. So, in our monetary policy communications we emphasised the fact that there is clear evidence of a permanent component in the oil price increase, and hence the headline inflation may be understated till that component is fully passed through. While the permanent component is judgmental, broad magnitudes could be perceived and articulated. Such an explanatory approach to headline and underlying inflation pressure in monetary policy has added credibility to the policy and influenced and guided the inflation expectations in India."

Hope this helps.



29 Sep 07, 08:08
karthik: sir, please tell me why Japanese currency vakue is less than indian rupee? I don't think their economy is inferior to india; i heard something called undervalue of currency?whats that?

Japan has introduced the yen in 1870. At that time a yen represented the value of 24.26 gms of pure silver or 1.5 gms of pure gold. If you were to buy that much of gold or silver now at the current rates, it would approximately require 1181 yen for that much silver and 3572 for the gold. This is where the weakness of the yen comes from. Over the years the yen has lost its value. Especially so during the World War II when its value was fixed as 360 yen for one US dollar. Afterwards, it has actually strengthened against the dollar and is today trading at about 120 yen for the dollar.

There were subdivisions of the yen also, just as we have paise for our rupee. Those subdivisions were the sen and rin. Sen was 1/100th of a yen and rin was 1/1000th of a yen. But these were discontinued in 1953. I hope you can guess why they were discontinued.



1 Oct 07, 17:19
Ajay: Hi, can you please give pointers for what contributes to India's GDP - % wise. What is the breakup in IT industry. similarly - %job sector wise. Also, what is jobless growth?

Look at http://mospi.nic.in/4_gdpind_cur.pdf for the composition of GDP. You will have to calculate the percentages from the figures given. A point to note is that if a sector you are looking for is not found in the table, you are on your own in finding about it from the industry body relating to that sector. They usually have some reliable estimates of their contribution to the GDP. But anyway that would not be official.

I have already answered about jobless growth in the shout-box itself. Any economic growth without creating employment is jobless growth. Such a growth is not considered good. It is more prone to widen the income disparities. Remember the Gini coefficient?

You can get authentic information on Indian Budget and the Economic survey at http://indiabudget.nic.in/

Hope this helps.