India is faced today with one of the most critical economic situations. At no other time did Indians witness the horrible phenomenon of spiraling prices as they do today, prices are soaring like rackets and each day one finds a rise in prices of more or less all essential commodities. Inflationary pressures are doing plenty of mischief and the people of middle class families are finding it a Himalayan task to make both ends meet. In a developing economy, prices usually display an upward trend.
But if prices keep rising persistently, they cause great hardship to the people. They spare neither the rich nor the poor, neither the producers nor the consumer. They make a economic activities uncertain and unstable, causing great unrest in the minds of the people. Prices are expressed in terms of money. When the rupee or any other currency buys much less than what it used to, and more is to be paid for practically every item, then the problem of rising prices comes into being. In economic terminology it is known as ‘Inflation’.
Where the balance between money supply on the one hand and goods and services on the other is disturbed, a critical problem arises. If money supply increases more than goods and services available prices will rise. The fixed-income groups like salaried people, wage-earners and pensioners are the most helpless victims of inflation. As prices rise, their real income gets eroded. The additional dearness allowance which the government sanctions from time to time proves of no use to them, because their purchasing power actually goes down.
Inflation induces businessmen to invest their money in nonproductive assets like gold and land whose real worth is not affected by rising-prices. High prices also adversely affect the exports of the country and distort the balance of foreign trade. In a developing economy a certain rise in prices in inevitable for at least three major reasons. First, the programmes of economic development generate larger employment and money incomes and these increase the demand for basic consumer goods and services.
The new incomes are not proportionately reflected in saving because a majority of the beneficiaries have to spend most of the additional money they get on satisfying unfulfilled needs. Secondly, the same programmes of economic development as generate the new money incomes push-up the demand for certain goods wanted also by the consumer, such as agricultural products, fuel, housing materials and the like. A third reason, of which the first two may be looked upon as special cases, is the large increase in currency in emulation and the operation of the law of supply and demand.
Unless the production of basic consumer goods keeps pace with the increase in currency that is rendered inevitable by large scale, long term planning, prices are bound to rise even of the production of consumer goods is maintained at the old level. Numerous factors can be cited to explain price rise in India First, our economic planning has suffered from serious drawback, right from the beginning. During the various Five-Year Plans, while the public expenditure persistently increased, the production targets were never realized. Secondly, this forced the Government to resort to deficit financing.
The resulting imbalance inevitably led to inflation. The Third, major factor responsible for price rise is that due to great emphasis laid on heavy industries in our Five-Year-Plans, agriculture and consumer goods industries, which produce the items required by the people, have received insufficient attention. Consequently, agricultural production has not kept pace with consumption. Fourthly, in an underdeveloped economy like ours, the first increases in income always tend to be expended on food articles. In other words, the level of consumption tends to increase with increases in income.
The cumulative effect is a growing pressure on prices. Fifthly, there is a tremendous increase in population. About ten million new mouths are to be fed every year. Sixthly, there are psychological factors that push up the prices. Continually rising prices give rise to rising expectations, with the result that farmers and stockiest tend to hoard more and more stocks, anticipating further increase in prices. Seventhly, there has been very heavy taxation on the public—both direct and indirect. In an underdeveloped country like ours, this adds to the inflationary pressure for number of reasons.
Heavy taxes on industries are ultimately passed on to the consumers, thus increasing their cost of living. Heavy taxation also discourages greater production. Defective tax-structure has encouraged tax-evasion and accumulation of black money and smuggling. Eighthly, majority of Indians have no community consciousness. There is no organized consumer resistance to price rise. The Ninth factor is the faulty distribution and marketing system. Last, but not the least, was the international factor, increase of oil prices in the international market.
In order to solve this difficult problem, some drastic steps must be taken. First, the entire strategy of planning should be changed. There should be equal attention on heavy industries and agriculture and consumer goods. Secondly, the mounting governmental administrative expenditure should be drastically curtailed as it is mostly wasteful and non-development expenditure. Thirdly, tax burdens on the public should be reduced. And finally, no hoarder, profiteer or black marketer should be left with impunity. Unless they are crushed with a heavy hand, the common man is bound to suffer.
Our government is quite conscious of the magnitude and implications of the problem. It has already initiated a number of steps to check inflationary tendencies. What we now need is a strict enforcement of these steps. Apart from accelerating growth and imposing curbs on money supply, we need an effective distribution system. We also need the support of the social workers and other public minded citizens to keep a watch on the unethical practices of shopkeepers.. But nothing can mitigate the situation unless the growth of our population is checked.
Courtney from Study Moose
Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/3TYhaX