Rising Inflation Beyond Supply and Demand

In Hind Motors’ days, we observed that with general increment made known through the word of mouth, the rikshapullers used to increase the rates, and so did the shopkeepers, particularly vegetable sellers. It never used to be a supply problem.

The traders try to take the advantages of the surplus money available in the society. According to the economic outlook report of Organisation for economic Cooperation and Development (OECD) released on May4, 2008 report, India’s move to raise pay of the government employees and to write off $ 17 billion or more of farm debt will spur consumer demand and stoke inflation. Is there a way to tackle this mindset?

To provide the desired incentive to remain viable, the government has considerably increased the minimum support of wheat and has also declared to do that for paddy. And I am sure this is one of the main reasons for the rise in inflation rate. The traders want to suck all or its own share from the extra money that the farmers or the workers have earned by their hard work.

In rural India, the traders today perceive the BPL households as richer consumers because the assured 100 days earning through the NREGA.

With the perception of economy booming, and the pay packets of the freshers from IIMs and IITs known to every one through media, all the self-employed population such as doctors, advocate, and other service providers such as plumber, electricians, and even the maids try to enhance the fees and remunerations. In last few months, I have seen Fortis Hospital enhancing the fee from Rs 350 to Rs 500 for the out door consultation; Max Hospital raised it from Rs 300 to Rs 400. And once this is known all others follow the rule that has no answer. How can the government put a control on it and inflation?

I was shocked one day when a dentist told me that the same person who pays $2000 in US for a root canal operation doesn’t like to pay Rs 2000 here in India. With better mobility and media, the global rates are known and this is causing the rise of the prices too. When one comes to know that even poor quality rice costs Rs 50 a kg, his anger about the high price gets subdued.

And surprisingly, all these people keep on talking about the inaction of the government in controlling the inflation.

India produced record quantity of all the agricultural items wheat, paddy, coarse cereals, pulses, oilseeds, soyabeans, and even cotton this year. The price rise can’t be because of shortage of supply, as every item is available in plenty in many varieties and quality grades.

As reported in media, the government decided to ban future trading in potatoes. With very good production of potatoes in Agra region, the traders refused to lift the potatoes. Naturally, the farmers were ready to sell at any price. However, the price of potatoes for the general consumers remained around RS 10 a kg all over the country.

Unfortunately, today the middle class as in 60s of West Bengal hardly raises its voice and protests against the price rise. During my younger days, I have seen huge protest against even few paise fare rise for traveling in trams of Kolkata. A mindset, that nothing can be changed prevails.

Fiscal measures, such as interest rates and imposition of export duty or ban such done on food grains items including milk powder and Basmati rice may fail to control inflation in such cases. Rather these controls are just to show that the government is conscious of its responsibility and working on it. The worst is the measure of ban and export duty on steel and cement. Instead, it would have facilitated the fast execution of the major projects of steel and cement production to enhance the capacity in the country. A huge foreign exchange reserve does not permit a government to move so irrationally to encourage import by removing all duties and discourage export by imposing ban in adhoc manner to make the materials available in the market to control inflation.

The middle class really compromises with inflation. I remember early 60s. We started with very good basmati rice, but over the period settled with inferior varieties. The quantity of milk got reduced, so was the frequency of sweet dishes such as ‘gajjar ka halwa’ and pure ghee (butter oil). But my businessmen friends didn’t have to resort to that. They kept their margin managed.

It was apparent in the newspapers of the day. Among all the negative comments against the fuel price rise, no one promised to innovate ways to cut the cost so that the inflation doesn’t escalate.

Will the next generation live with inflation or forget the word?

Here is an advisory article from ‘Business Today’ to ‘fight against inflation’
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‘Price rise is a fact of life. You have to adjust’

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