INFLATION- A NIGHTMARE TO THE INDIAN POOR

It is really unfortunate that our nation is facing one or the other worst natural calamities. The
natural calamities like tsunami, floods and famine hit large numbers of people in our country.
These types of problems are persisting every year, making the lives of poor and destitute very
panic. Among the sufferers, the poor and destitute forms the major portion. The people in our
country struggle every day to explore the solutions to over come the problems they face.
After calamities, the next serious problem the people in the country face is the roaring
inflation. The natural fallout of this has been that we as a nation have become virtually
intolerant to inflation. Thus inflation is a nightmare for the nation in general and to poor &
destitute in particular.
Let us understand what is inflation? It is a fact that many have not understood the meaning
of inflation. The illiterates and majority of villagers are really not aware of the meaning of
inflation. Although it is common knowledge that prices go up over time, the general population
does not understood the forces behind inflation. But they are the people who have a negative
effect from inflation. Inflation made their life disastrous. Unfortunately very often the students,
customers, business people demonstrate a fuzzy understanding of inflation and its causes.
The rise in the prices of goods that are used by a common man is a general phenomenon in
the Economy. This rise in price or rises in general price levels affect everyone in the form of a
burden to buy the goods. This particularly affects the poor and downtrodden in the nation. Such
type of rise in prices or rise in general price level is called as inflation. Inflation rate is the rate at
which prices of goods and services increase in its economy. It is also an indication of the rise in
the general level of prices over a time. In other words, the common usage of the word inflation is
the effect that people see. When they see prices in their local stores going up they call it as
inflation. This is a complex situation a country under go in the form of an economic disturbance.
It is measured in the form of a percentage.
Measuring inflation is a difficult problem for the economic analysts. To do this a number of
goods that are representative of the economy is put together in to what is referred to as “ Market
Basket”, since it is practically impossible to find out the average change in prices of all the goods
and services traded in an economy due to the sheer number of goods and services is used to get
an indicative figure of change in prices which we call IT AS inflation rate.
The inflation has so serious effects that when it was surged to double digit level in the mid to late
1970’s, Americans declared it as Public Enemy No.1.Since then, public anxiety has abated along
with inflation, but people remain fearful of inflation, even at the minimd levels.
 There are several thoughts that mild inflation is always good for the economy. It indicates the
active economic activities in the nation. The zero inflation rate indicates the passive outlook of
the economy. In the meantime it is not desirable to have hyper inflation that runs in double
digits. The hyper inflation leads to abnormal increase in prices of goods and services that
seriously affect the economic development of the country.
But in recent times the inflation in India if growing at the galloping rate. The following data
reveals the shocking picture of inflation in our nation.
Jan 2007 Jan 2008 Jan 2009 Jan2010 May2010
6.72 5.51 10.45 16.42 13.91
INFATION

Inflation is hovering between 14% to 16.5% per cent in the year 2010. Everyone is facing the
brunt of rising prices. Food prices are soaring . . . all essential items like vegetables, oil, milk,
sugar are getting costlier. Rentals and real estate rates have almost doubled in just a few months
in most cities. The real estate prices are at record highs making life miserable, especially for
people who have migrated to cities for jobs.
India’s food inflation is also increasing which is mainly due to higher prices of essential
items like pulses, fruits and vegetables. The prices of pulses like urad, moong, fruits and
vegetables were high during the period.
Let us see how food prices have risen since 2007:

Jan 2007 Jan 2008 Jan 2009 Jan2010

6.72 5.51 10.45 16.42
INFATION
Food Articles 7.02 6.64 12.32 17.41
Food Products 3.43 9.80 13.79 22.55
Food Grains 6.27 6.37 14.14 17.89
Cereals 6.97 7.20 12.96 13.69
Pulses 2.14 1.30 21.81 45.62
Dairy Products 6.08 8.38 6.12 12.87
Egg, Fish and Meat 6.38 3.75 14.44 30.71
Sugar -14.49 5.62 36.34 58.94

India’s soaring food prices are a product of both international and domestic factors. According to
the World Bank, international prices of agricultural commodities rose 73 percent between
August 2007 and March 2008. Global wheat prices, for example, have shot up by more than 100
percent over the past year, due to poor weather conditions in some wheat-producing areas.
 Food price inflation is one of the most critical economic problems in the country today, and
the ability to control prices of food articles quickly and effectively is one of the main bases on
which people will judge the performance of this Government.
What are the reasons for inflation?
There are several reasons for inflation. The absolute root cause of inflation is the fact that we are
all stuck together on one world with limited resources. As the world wide population increases
every year, we end up with a situation where there are constantly more and more people
competing for fewer and fewer resources. Let us analyse the important reasons for inflation
1. The first and foremost reason is a sustained rise in the prices of commodities that leads to
a fall in the purchasing power of the nation.
2. Several internal and external factors such as printing of more money (Deficit Financing)
by Reserve Bank of India, a rise in production and labour costs, increased taxes and wars.
“As long as you don’t print money, inflation rate will always be Zero percent”.
3. Inflation can also be caused by international lending and national debts
4. The root cause of inflation is usury (usury is any unearned profit). Most money is created
by banks as loans.
5. A stock market boom, a real estate boom in various related markets as much as the
increased cash flow has in a way resulted in overall inflation.
6. A serious fall in the exchange rate may also be cited as a cause of inflation. This is due to
the fact that the government has to deal with the differences in the levels of the country's
imports and exports
Evil effects of inflation
The middle class and poor have been hit harder by inflation

than affluent groups in our country. Inflation hurts the poor heavily because of the increased cost
of goods and services forces them to spend more. Their purchasing power will obviously come
down, yet they have to fight for survival. The increases in price generally outpace the salaries
and the wages they earn. Poor would be hurt worst because they earn minimum wage and
everything they buy is getting more expensive. "Everything has gone up, eggs, milk, everything
is very high, and poor don't have a remedy,"
During inflation, the poor cannot expect that the wages can increase like increase in prices.
Wages for typical workers, meanwhile, have been rising slowly. While reacting for inflation
Washington Post Staff Writers reports that “It just doesn't seem like anything is cheap these
days," and “poor people don't eat out very much, no vacations, nothing extravagant unless it's on
sale." The deep rooted inflation makes health products costlier. The poor can not offered to
spend on their health due to increased cost.
Jared Bernstein, an economist at the Economic Policy Institute, a left-leaning think tank says, as
reported in Washington Post, US that “this is what's at the core of the middle-class squeeze," and
“the idea that you can understand the kind of budget constraints that middle-class families face
by looking at overall inflation is wrong. You have to look at the core items a middle-class family
buys." Since the poor require so much of their income to survive, there is little left over to save
and invest in assets that might keep pace with inflation.
The small investments made by the poor lose the value in the future. The earnings do not match
the increased value of prices od goods and services. Many developing nations experienced that
inflation made poor to reduce consumption because of inflation. As the businessmen are
disturbed by inflation may not evince interest to create new jobs to help the poor to beat the
inflation.
Inflation also makes planning for the future more difficult, so businesses are less likely to take
risks. No risk means no advancement which stifles the entire economy.

The wealthy are not forced to spend all of their income on everyday living expenses.
Furthermore, the wealthy own the businesses and the real estate and the other assets that benefit
from inflation. The purchasing power of the wealthy does not decline near as much as the
purchasing power of the poor. So the gap between the poor and rich widens. It should come as no
surprise that this would occur once the concept of inflation and its effect on purchasing power is
understood.

Government Initiation to Control Inflation

India continues to pay the price for not undertaking fundamental monetary policy reform. When
inflation spikes the single focus of the government becomes controlling inflation In a developed
economies, the central bank of the nation alone will initiate appropriate action to control the
inflation. but in respect of developing nations like us Inflation is fast becoming an
'internationally tradable virtual commodity' over which nation and their central banks are losing
control. However the Government of India has initiated monetary and fiscal steps to control
inflation. Yet we see the frequent occurrence of inflation.
To control the food inflation the Government may initiate measures like raising the interest rate.
But this measure is going to be a counter productive since it will attack all the producers without
addressing the problem. Instead, if Government is serious about curtailing food inflation, the
Finance Minister must provide substantially more funds to enable a proper and effective public
distribution system.
Under attack for rising prices, Prime Minister Manmohan Singh today said the government was
making every possible effort to control "high inflation" and insulate poor from its adverse
impact.

While speaking from the ramparts of the Red Fort on the 64th Independence Day the Prime
Minister Dr. Manmohan Singh said "I know that in the last few months high inflation has caused
you difficulties. It is the poor who are the worst affected by rising prices, especially when the
prices of commodities of every day use like food grains, pulses, vegetables increase. He said
further that "It is for this reason that we have endeavoured to minimise the burden of increased
prices on the poor,"

By
Dr.N.Moogana Goud
Professor and Director (MBA Programme)