Inflation:

Inflation:

1) Prices of products depend on the demand and supply of that item.

2) Prices go up in the case of a supply deficit.

3) COVID impacted both the demand and supply side of the global economy.

4) Relief packages announced by govt and so by the Indian govt. Fiscal stimuli.

5) Has caused an increase in purchasing power and the industries couldn't match this demand.
Causing an inflationary situation.

6) Food and fuel prices due to the global crisis like the Russia Ukraine war and Covid-19 supply chain
disruptions.

Semiconductors shortage. Started stocking available chips and not in the open market. laptops, PS
computers, and phone demand went up and caused an increase in prices.

The automobile sector also suffered from a supply crunch and inflation was upped.

Worker crisis due to COVID. Many had to move jobs to freelancing and other digital role and also the
migrant workers had to go back home due to no funds. The production crisis also caused the supply
to not meet demand and the prices were further inflated.

Cargo loading and unloading slowed down due to worker crisis. Laws for covid vaccination and
quarantine slowed down global supply chain through ports. increase in crude oil prices also caused
supply chain disruption.

Russia/Ukraine:

Ukraine – corn, and barley major exporter. Top exporter of seed oils. Rich in minerals – iron and
titanium. (15 Bn USD) industry. Gallium and germanium on which the semiconductor industry
depends. Disruption of supply has created shortage and hence macro economic effects such as
inflation.

Russia – agri fertilizers, silver, gold, platinum, and diamond, crude oil exporter second largest in the
world. Faces international sanctions made Russia retaliate by stopping global exports causing
shortage.

India export (1%) and imports (2%). Not really dependant. Only dependant for arms and hence a
neutral stance. Rise in crude oil prices have caused an inflationary situation in food commodities and
fuel.
Why is USD high?

1) US fed is hiking interest rates due to high inflation. They want to increase the cost of
borrowing.
Foreign investors are putting money into the US. Demand for dollars is high. Therefore,
prices in rising.
2) Oil prices not affecting the US as much. Self-sufficient.
3) World economic crisis, the US is considered to be a safe haven.

Sri Lanka economic crisis:-

1) Sri Lankan economy relies on imported goods even for the basic goods not just luxury. (sugar,
cereals, pharma)

2) High decline in foreign currency reserves. Since they are less, the prices for these goods is
increasing at an expononetial rate.

3) High inflation. (25% inflation in a month's time)

4) Fuel is also imported from outside. There is a major power crisis. (4 out of 24 hours electricity)

5) Taken credit line of 1BN dolalrs from India. -

6) Debt trap in the case of China. -

7) Requested restructuring of payment terms and another credit line of 2.5 BN USD.

8) IMF and World Bank for rescure operation. -

How it happened?

Decline of tourism due to attacks:

- 12-13% of Sri Lankan economy relied on foreign tourists.

- Bombings in April 2019 made tourists reluctant to come. Local Islamic terrorist group responsible
for it.

- Muslims were attacked.

- 100 troops were deployed. Social media was blocked.

- Facebook algos responsible for propogating riots.

- Tourism affected heavily.

Covid:

- Again tourism was affected.

- President: Gotabaya Rajapaksa promised rapid economic growth.

- VAT promised to be removed. Hoped for grater consumption and hence greater economic growth.

- Covid struck, consumption didn't increase. Also, govt faced huge revenue loss.

- Made a promise to convert all farming into organic

- Overnight ban on synthetic fertilizers and pesticides.

- They thought import could be cut down and reduces pressure on foreign exchange.

- Rice was sufficiently produced inland. But in 6 months, 450M of rice was imported by the govt.

- Tea went wrong as they couldn't export as much as before and the foreign reserves hit another
block.

Foreign debt:

- China played debt trap diplomacy.

- Can't make profit out of it. China takes it over from other countries.

- 1.2 BN in foreign currency payed to the govt.

- 1 USD = 300 USD.

Currency weak, more imports, inflation high, ministers 26 have resigned. Not given resignation, the
president given hate by janta.

How is China’s covid lockdown impacting the world economy right now?

- China is the world’s largest exporting economy and the second largest importing economy.
- 8 out of the top 20 ports are in China.
- Technology, retail, and automobile rely heavily on China.
- Not enough trucks for products to be taken from the terminal or to be loaded in there?
- Shanghai is not only China’s manufacturing hub; it is the world’s manufacturing hub. 40 % of
goods that go out of China are handled here.
- Workers have been made to stay in the factories, halting production activities.
- Drivers have to go through multiple test sites that halts production for up to 5-7 days.
- Supply chain disruption and export disruption as a whole.
- Large population ->> elderly. Not protected. Vaccines are not as effective. Can’t apply zero covid
policy.
- Chinese leadership fear re-opening.
- Logistics prices are always added to the final product. (Freight rates have increased due to
demand not being met)
- Consumers face inflationary pressure to date.
- Govt wants to cut interest rates and pump more money into the economy but the worry is that
people are worried to operate businesses due to COVID right now.
- Need a one testing policy for all provinces.
- Ships are just sitting there due to quarantine issues and the product can’t be moved to the
world.
- Supply chains and inflation comes into the case.
- Negative on companies like Walmart and Target, not enough product on the shelves due to
rising costs.
Impact on Indian economy of above crisis?
- Independent to an extent. But global supply chain issues. Impacting the world economy. And
hence Indian economy suffering but not much.

Indian economy during distress?

- Rise in crude oil prices due to supply chain disruptions caused inflation in food commodities and
fuel.
- Production crisis to migrant workers. Slowed down production.
- Fiscal stimuli generated to help people increase demand but the supply couldn’t match it.
- Supply chain disruptions also caused a shortage in semiconductors leading to high prices for
electronics and the automobile industry faced a supply crunch as well.

Industry 4.0: