Inflation Case

Essay on Inflation - a Major Cause of Inequality. Sri Bhabatosh Datta, the famous economist has clearly stated that: "The origin of inflation is often found in the panicky nervousness of unstable governments in olitically unstable communities.

Given political stability there is no reason why India should not be able to carry out her future plans without generating serious inflationary pressure on the price level."

The percentage of inflation in regard to price movements and the purchasing power of the rupee need to be evaluated on the basis of wholesale price index (WPI) with 1950-51 as the base year. Unfortunately, the government with the intention of preventing a factual comparison of the purchasing power of rupee, keeps changing the base year every decade, from 1950-51 to 1960-61, later to 1970-71 and finally to 1980-81.

Deficit financing in every five year plan and improper planning led to a 40 percent rise in food grains, 45 percent in cereals and over 70 percent rise in pulses during 1961-1966. The country was in the grip of a galloping inflation. This with 1950-51 as the base year.

Keeping 1960-61 as the base year, the Fourth five year plan save the price index at an all time high of 331 in September 1974 (with 1961-62-100). This was due to a combination of several factors, the primary being the influx of refugees in large numbers from Bangaldesh and the expenses incurred by the government on them, failure of Kharif crops in 1972-73 and complete failure to take over the wholesale wheat trade. The declaration of Emergency in June 1975 resulted the arrest of price rise and a steep fall in inflation and prices of commodities.

Unfortunately, political upheavals, callous bureaucracy and an equally callous inflationary budget by the Finance Minster Mr. Charan Singh in 1979 brought all the good work reduced to nil and inflation back to an all time high, and the election of a new government in January 1980 saw that inflation was taken up as top priority. However priorities in our country kept changing due to political considerations and the rate of inflation kept going up and being pulled back again. The 1980's saw, by and large, a controlled inflation.

The 1990's again saw the economy and inflation rate in doldrums with double digit inflation in 1990-91 and 1991-92. The political considerations in increasing the prices of food grains was one factor, the second being the steep rise in prices of petroleum products in one go. The inflationary pressure was mainly on food grains, vegetables, cereals, sugar and vegetable oils. Due to these factors, the galloping rise in prices continued for the better part upto mid-nineties.

Inflation has been defined in the literal sense as related to economic factors as "a progressive increase in the general level of prices brought about by an expansion in demand or the money supply or by autonomous increase in costs or the rate of increase of prices."

Causes of Price Rise:

There cannot be any single cause for price rise of essential commodities continually over the years. Infact, over the years and even from the time of independence, there have been regular inflationary pressure on the economy partly through imbalance in demand and supply. The ever increasing demand has been primarily due to our ever increasing and bulgeoning population. Even a few decades ago it used to be around 12 to 14 million every year which has gone up to nearly 20 million every year.

This increase in population automatically creates an increased demand for food and essential commodities which results in a persistent gap between demand and supply in almost all consumer goods and services. It is indeed unfortunate that we have not been able to evolve a fixed and common norm to check the spiraling population, something which China has been able to achieve. Our politicians,