Impact Of Inflation On Indian Steel Industry

Project on Impact of Interest Rates and Inflation on the Indian Steel Industry

For

Matrix Business Solutions

By

Tarun Acharya

PGDM – IMT Ghaziabad

Contents

Interest Rate on Business 3

Inflation on Business 4

Global Impact of Interest Rates and Inflation 4

Impact of Interest Rates and Inflation on the Indian Steel Industry

Interest Rate on Business

The impact of Interest Rates on a business is with respect to the borrowing, safekeeping, and lending of money by a company. A company pays an interest when it borrows money from a bank for its operations. It receives an interest when it lends money out of a surplus to other companies and also when it places its funds in a bank for safekeeping. Thus the impact of

The cost of borrowing gets impacted by the change in interest rates as mentioned before. When the rates increase, the banks charge a higher rate for the loans they give out. Starting a business or expanding the business at times of high interest rates hamper growth and result in lower revenues and delayed profits. Interest rates for personal loans also go up at the same time therefore the purchasing capacity of the consumer also reduces. They have to pay higher interests, which results in lower disposable income, which in turn results in lesser purchasing capacity. The bottom line remains, whether you are a business or an individual, the lower the interest rates, the more you can

Lower demand for money results in decreased value and lesser willingness to pay high prices to obtain it and results in lower interest rates.

Inflation on Business

Inflation also has many different impacts on a business. Like interest rates, inflation also affects consumers’ purchasing power. With increasing inflation, the value of money decreases. Thus Rs 100 will not be able to buy you the same things 5 years later as it is now. Thus the sales of a business goes down if its customers’ purchasing power does not remain steady with the rising inflation. With respect to the business, their overall revenue gets affected.

As far as costs for the company at hand are concerned, the prices of everything rise with a rise in inflation as the money loses worth. Thus to procure the same amount of goods, it will now cost the company more. Therefore the cost of their raw materials they purchase to make their finished goods will go up.

Therefore it can be said that the impact of inflation on a business can be reflected through the change in its revenue as well as the change in its cost of materials consumed given the change in inflation