Rising Pricing in India: Unwanted Evil: Civil Services Mentor Magazine July 2012

The problem of rising prices is one of the most important problems that India is facing now. Over the past several years rising prices have become a chronic malady in India’s national life. They have given rise to widespread distress, especially among people who are already living at the subsistence level and also among those in the fixed income group, viz., wage earners and the salaried c lasses. Because of persistent increases in the prices of the necessaries of life, the number of people living below the poverty line has been steadily increasing. The unprecedented rise in prices of almost all the important necesscities of life has posed a serious problem before us. Millions of people find it hard to earn one square meal a day, because prices of food grains, edible oils, sugar other food articles have been r aising very rapidly. This has caused great unrest among common people. The annual average of whole sale prices index always owes an increasing trend. This alarming rate of increase in prices has thrown the countries economic out of gear and made common man’s life miserable millions in India to-day sleep without food at night. All their day’s work does not even promise them sufficient to eat and drink. Everybody is complaining  of increasing prices day by day. Prices have become double in the last few years and there are many things which are now beyond the r each of common people. This phenomenal increase in prices is not the result of any simple factor. There are several factors which are responsible for it. Apart from industrialists, manufacturers and middle men, our government is also at fault. It is increasing taxes.

Price rise does occur in the process of economic development. But in India the rise of price has been much higher than what it should have been. It broadly means holding the inventories and selling it at higher price. It creates artif icial scarcity in the economy inspite of increase in production and results in price rise. The rapid growth of population means more mouths to feed, more demand of clothing and basic necessities as compared to supply of goods and services which result in price rise. It means printing more currency notes and coins. In India deficit financing is done mainly to meet the budgetary deficit. It results in more supply of money in the economy but when increase in supply of money corresponds with less increase in the supply of goods and services (National output) there is rise in price of goods and services. Money supply includes cur rency notes and coins, demands and time deposits. Increase in money supply shows that people in an economy are ready to spend more money for buying goods and services.

The economists are of opinion that g rowing economy of the country has given rise to the rising prices. Such economy causes inf lation. In infla tion purchasing power runs ahead of purchasable goods. In other words, in a growing country, the supply of money increase at once but the supply of goods takes time to increase. Again the population has incr eased. This has further increased infla tion. Because of growing population the current corruption is increasing. The factors which contribute to price rise can be broadly classified as external and internal. In the context of the situation as it has developed in India, we have heard it repeatedly many times that the rise in prices witnessed in the country is in part due to the impact of global inflation. Obviously, we can not do much about global inflation and the impact it has on the price situation in India. But we can certainly apply our minds to identifying and controlling or at least mitigating the rigours of the internal factors which may be agg ravating the situation. The symptoms of the disease are clear enough. But before we start thinking of the remedies, we need to form a clear idea of its internal causes also. According to economists, the main culprit in this context is infla tion. In layman’s language, it describes asituation in which too much money is chasing too few goods. We are repeatedly told that money supply in the country has been increasing. This means that the amount of money circulating in the market has been going up. Natur ally enough if it exceeds the value of goods available in the market, the prices are bound to go up.

Rising prices encourage hoarding, profiteering , black –marketing and corruption. They discourage export. They cause devaluation of currency. Lastly, they seriously disrupt equitable distribution of wealth. The government’s recent decision to opening up retail sector to big multinational corporation going to create more problem because, these for ces take full control of the market and whenever they want to make manipulate the market. On the other hand, it badly affect the govts. performance and public anger. The Present Prime Minister and Finance Minister, without making a second thought try to open up all sectors even the retail sector which will badly affect the retail traders as well as theconsumers. On the farmer’s & direct consumers point of view, the govt. is doing nothing on this issue, just making a temporar y noises, with no action. At the late hours, the govt. need to look into all aspects in its policies to address the pressing farmers issue, otherwise the present problem of price rise and farmers suicide going to increase many fold. It is an early wake up call.

The problem is very dangerous. It needs measures – short and long term, to be adopted. These measures include as appeal mixed up with threat to the sellers, raids on go downs and other hoards of g rain, the seizing of blac k, the cut of Rs 400 crores in central expenditure, the increase in bank rates to 5 %, the opining of fair price shops, the rationing of provisions, the imports of food-grains from some foreign counties, the curbing of unproductive expenditure by the Government, the readjustment in the scale of pay and the emphasis on small plants. The short term measure will help the government to hold the priceline. The long term measures will help the government to withdraw the huge amount of money pumped into circulation during the last year. To sum up, some of internal causes which precipitate price increases are excess money supply, faulty planning, unrealistic impor t and export policies, imbalance in production, rapacity among traders and excessive increase in population. Given the necessary will and determination, none of these presents an insuperable problem. The causes of increase in money supply are well known, viz., large scale deficit financing over the years, increase in bank-credit, the cost of food procurement and subsides etc. Surely India does not lack talent which can find the answers of these problem. Experience tells us the only impulse to which a majority of the business people in India respond is fear. Appeals to their patriotic instincts fall on deaf ears because they seem to have no such instinct. The only way in which they can be made to behave is strict enforcement of the laws on the statue book to keep the prices of essential commodities under check and harsh measures ag ainst hoarding and prof iteering. They may not be able to understand the language of reason but they will certainly appreciate determined action. Simultaneously, steps will have to be taken to increase production, par ticularly of such items of mass consumption as may be in short supply. Another step that is urgently called for in this context is the streamlining and strengthening of thepublic distribution system. Last but not least, it has to be remembered that all these measures can be successful only to the extent we can control population growth so that it is not allowed to make nonsense of all planning. Given the necessary will and determination and with the active co-operation of people at large, the problem of rising prices can certainly be solved.

Therefore, The govt. should try to crate such a mechanism at the earliest to liberate the farmers from the clutches of middleman. The existing commodity exchange only benefits these traders and not the farmers which need to be noted. There is no proper check in FCI and other godowns to prevent black marketing. By stocking through these g odowns, the manipulators crea ting artificial price rise and then it encouraged black marketing. The high inflation can be fully controlled if the govt. and the concerned authorities make proper check on the market and raid v arious godowns across the country.

Amit Kumar