INFLATION

Medowe Kapfo

At present, India is faced with a host of problems of varying urgency and the problem of soaring price is one of the most important problems that our Motherland is confronted with.  The problem is two-fold: to check the rising prices and if possible, to bring the prices down. The prices are sky-rocketing since UPA came into power under the President ship of Sonia Gandhi and the Prime Minister Manmohan Singh, when the Government first devalued the rupee, the prices have risen more than ten times. The Price situation is worsening.  It is now major national problem-it has eclipsed all other issues before the country.

The problem, on the face of it, may seem to be quiet simple. But in fact it is no so. It is closely related to the welfare of the people. It owes much to the Administrative efficiency of the Government. And the last but not the least, important is the fact that the success of a Government depends largely on the behavior of prices in that country. This problem of rising prices has wide ramifications. It is the result of the operation of a large number of causes.

The present shortage and bottlenecks are mainly the result of developmental programme based on adhocism and drift. While concentrating on food production, the Government appears to have overlooked the obvious facts that in years of agricultural prosperity, demand for clothes, edible oils, vegetable, fish, meat and milk etc., is bound to increase. These are, precisely the food items, which have been showing maximum prices increase.

Another cause for the rapid price rise is the phenomenal increase in population. This has further accentuated inflation.  The production of goods is expanding slowly. The current consumption of goods is increasing because of the population growth, resulting in price rise.

The repercussions of inflation are serious. During inflation there takes places a widening of profit gap because the demand is in excess of supply. The scarcity of goods provides opportunity for all sorts of evil practices in trade. The chances of profit are fast increasing and there is a great market for goods. Therefore, there takes place stockpiling of goods or what is popularly known as ‘hoarding’.  Hoarding further accelerates the pace of prices. The Home of goods increases. The foreign buyers, therefore, will not be attracted to buy such goods. The result is that the foreign market is lost and much foreign exchange is lost. The value of the rupee falls.  

Also in the period rising prices, the rich gets richer and the poor gets poorer. The rich owns the means of production. The pay the laborers bounteously but they take with the left hand what they give with the right. The cost of goods swells, the prices naturally do. There exists a wide gap between the wholesale and retail prices. The laborers now pay in the market much more than he did before. What his master gives him, the market takes away. The money naturally goes into the hands of profit-earners, businessmen, merchants and manufacturers. The result, therefore, is that there does not take place any equitable distributions of national wealth and the main objective of the socialistic pattern of society is defeated.

A two-pronged attack has to be launched in order to hold and bring down the price line. The short-term measures, such as fair price shop, rationing of provisions,  distributing the scarce goods in an egalitarian manner, seizing hoards, etc will help the Government to check the present situation from deteriorating. The Long-Term Measures, such as drafting a small plan, increasing bank rates, taxation, Government borrowing, etc., will help the Government to  withdraw the huge amount of money pumped into circulation during the last few years. They will also help to reduce the time lag inevitably created between the supply money and the supply of goods.

The real answer to inflation lies in the greater production and productivity. Industrial production can be appreciably raised with the existing installed capacity. If bottlenecks such as raw materials shortage, undue licensing restrictions against efficient large-scale producers, and unreasonable labor demands are removed. The Government task should be not only to ensure a proper materials balance for Industry, but also to adopt a fair-minded policy to bring about the much-needed climate of industrial place and harmony.

In a developing economy, prices are bound to rise and there can be no absolute price stability. But limits should be defined.  A general view is that a modest annual increase in price is not unhealthy for a developing economy. But there cannot be a general yardstick of the so-called safe limit. Price increased must be matched by increase in the National income in real terms.