It is said that India’s population has increased geometrically while the production of various goods and services has increased mathematically. In other words, the production has not risen as fast as the increase in population. This has resulted in the steady rise in the demand for all types of goods and services across the country. As a result, the prices have been on the rise generally.
The rise of prices of hundred commodities measured at Wholesale Price Index (WPI) as compared to the prices of those commodities prevailing at the corresponding week of the previous year is known as inflation. The government is determined to keep inflation between 3 to 5 per cent, which means that the price rise to the minimum acceptable level is considered to be a natural phenomenon in any economy, particularly a growing economy like India’s. In other words, the price rise is a part of our economy.
This is evident from the fact the prices of all the commodities have risen over the years. Taking a look at the prices of necessities like cereals and other eatables would reveal that their prices have risen fourfold during the last couple of decades. Wheat flour which was about Rs. 5 a kg is now over Rs. 15 a kg; rice has risen from Rs. 6 a kg to around Rs. 18 a kg; one kg of sugar now costs around Rs. 17 as compared to Rs. 7 about a decade ago. Pulses and gram’have become much costlier than they were before the turn of the century. Vegetables are consistently high-priced-whether during season or off-season. In short, the prices of all the agricultural products have gone up more than twice.
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It is important to ascertain the reasons for this unprecedented price rise before we embark on the issue of its impact on people. Despite the high annual GDP growth of India’s economy during the last five-six years, our agriculture has not performed well. The annual target of four per cent growth by the agriculture and allied sector has been falling short by about 40 per cent during the entire Tenth Five-Year Plan (2002-07) and the initial period of 11th Five-Year Plan (2007-12). The sector has been under the pressure of increasing population. That is why a regular increase in foodgrain production has not been sufficient to arrest the escalating prices. We have to import foodgrains to maintain food security.
The prices of agricultural inputs like seeds, fertilizers, chemicals like pesticides, insecticides, farm implements, and transportation charges have almost doubled within a span of few years. The farmers who have to bear the higher cost of these inputs naturally demand a higher price for their products; otherwise the farming activity would no longer remain viable. Today, people are shifting away from their agricultural profession because of various reasons-persistent poverty being the major among these. The government is doing its best to keep the farmer in the farming profession-through fertilizer subsidies, easy credit and minimum support price for major Rabi and kharif crops. If we need to alleviate poverty in our rural areas we have to give adequate remuneration to the farmers for their produce. How can the farmers prosper if the prices of agricultural products are low?
The lack of proper distribution of foodgrains is another reason why the prices thereof remain high at some places. Then there are malpractices by the public suppliers like ration shops who sometimes create artificial shortage denying the deserving beneficiaries their due. There are also unscrupulous traders and hoarders who exploit the market conditions to create glut or shortage.
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The impact of the rising prices on the people at large has been huge. The public at large has felt the burden, particularly during the last three-four years when the explanation has been quite steep. The poorer sections of society have been the worst suffers because of the two principal reasons: first, that the income at their disposal is limited-often insufficient to fulfil their needs; and second, that these poor sections spend about 80 per cent of their total income on foodgrains and other eatables. A rise in the prices of these good naturally means less value for their income which is already low.
People who live below the poverty line have been driven to hunger and destitution. Many farmers in Andhra Pradesh have committed suicide because they were facing hunger. The lower middle class-whether living in villages or cities has been a great sufferer because they are ambitious people. They want to give the impression of being well-off though it is becoming increasingly difficult for them to make both ends meet.
The price rise is not confined to cereals and other eatables. The other commodities like real estate, textiles, steel, cement, furniture, transportation and communication have shown a steady increase in their prices. The highest rise has been in the real estate sector. The houses, flats, shops and offices have become so costly in just a decade that even well-off families are finding it difficult to own a house of their own. Such a situation exists particularly in metropolitan cities of Delhi, Mumbai, Kolkata, Bangalore, and major cities like state capitals and districts.
The area is limited but more and more people are migrating to cities because of better employment opportunities and other facilities like education, health care, transportation, trade, etc. There is a limit to which houses can be built in each city. As more and more people put a demand for houses or flats, the prices tend to shoot up. The colonisers, real estate agents and brokers generally keep a high price for flats and shops to earn more profit. It appears as if the government is not able to control the unprecedented rise in the price of properties.
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The cities are expanding in every sense of the word. The trade, business and other activities are increasing. The mall culture has given rise to construction of big shopping complexes. The price of shops in such multiplexes exceeds rupees one crore. This price rise has many social effects. People’s dream of owning a house tends to remain a dream; the business of giving flats/rooms on rent or keeping paying guests is flourishing. The financiers are making huge profits by financing houses and other assets like cars and other household goods.
Talking of household goods like TV, fridge, microwave Owen, washing machine, music system, etc. they are the need of every household. These days, mobile-phones have also become everybody’s need. The younger generation is also attracted towards readymade garments and other items of fashion. The prices of these goods have also gone higher over a period of about ten years. This is primarily because of higher demand. This has resulted in a division of Indian society. There are those who can afford these goods and those who cannot buy them because of their limited means. Some experts feel that these socio-economic differences lead to hatred and lack of cooperation between the people of these two groups.
There are certain goods the prices of which have not risen. Computers and the common electronic goods may be included in this category. This has been possible because of expansion of technology used in making these gadgets. The government has given certain incentives like reduction in taxes, tariffs and duties. This has been done not only to provide relief to the people from rising prices, but also to make the prices internationally competitive.
Price rise is a natural phenomenon and is witnessed in almost all the countries. Steady prices augur well for the economy. But when they cross tolerable limit as reflected in the higher rate of inflation, the government has to take certain monetary and fiscal measures like increase in bank rate, Cash Reserve Ratio (CRR), Prime Lending Ratio (PLR) and lending rates by banks. This is done to reduce money in circulation, and generally the measures prove effective.