Inflation and India

INTRODUCTION

We all are familiar with the word “inflation“, especially these days when inflation is on a 13 year high in India. Almost everywhere these days we find the word “inflation”, be it magazines, newspapers, news channels, or a common discussion going on in the public. Well, the term inflation means “a rise in the general price level in the economy”. It is the most common topic of discussion these days and therefore I have chosen this topic for my project. At present India is facing the problem of inflation. The rate of inflation has gone up to 12% which is very high and is quite dangerous for our economy. The last time inflation reached such high levels was way back in 1995. It is a major issue and the government needs the support of its people to tackle this economic problem of rising prices. It is not that inflation is totally undesirable. Some amount of inflation is necessary for every economy to progress, but it is when the inflation levels reach a very high level that they become a major issue of concern for the economy. Hence I have decided to make my economics project on this topic and to present my opinion on this major economic problem that our country is facing these days.



INFLATION IN INDIA

It is not that the current inflation is a recent problem that India is facing. India has seen inflation several times previously too. During the 1960’s the inflation rate was quite high. In 1966-67 inflation rate had reached 13.9% owing to the Pakistan war that took place in the year 1965 and the famine conditions which further worsened the situation in the country. Again in the seventies as well the inflation rate was quite high due to the hike in oil prices. In 1990-91 inflation again reached double digits mainly because of the Gulf war which lead to shortage in supply of petroleum products. However between 1996 and 2004 the inflation rates were quite low. Last year, i.e. in 2007 the inflation rate was at 5.77% and it was decided by the government to bring down the inflation rate in 2008 to about 4.33%, much lower than what is was the previous year.

Now, measuring inflation is a quite a difficult task. To do so a number of goods that are representative of the economy are put together into what is referred as a “market basket.” The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year. In India two types of index: Consumer price index (CPI) and Wholesale price index (WPI) are used to monitor inflation. Off the two, Wholesale price index (WPI) is the most widely used price index.


GENERAL VIEW ON THE RISING INFLATION

It is quite clear that the rise in inflation levels in our country is due to the rise in oil and steel prices globally. The oil prices have gone up considerably over the past few months. They were at 60$ a barrel last year and this year they have gone up to 140$ barrel. Steel prices have also gone up quite considerably recently. Since steel and oil are the basic requirements of every industry, therefore these two factors have gifted us such high levels of inflation that our country is facing today.

It is believed by most of the people that such high inflation levels are due to poor planning of the government. People all over the country are blaming the Manmohan Singh government for the high levels of inflation that India is facing today. It is true that the last time our country faced such high levels of inflation, Congress was in power and Mr Manmohan Singh was our finance minister and our current finance minister Mr P.C.Chidambram was then our commerce minister. That time too the elections were due in a year and Congress lost them. Well this time also there is a similar situation in our country. The elections are due next year and it is uncertain whether the NDA government can survive them.

Also it is a general view of the people that the government should have taken adequate steps to tackle the problem of the rising oil prices because it was well known in advance that the oil prices were about to surge higher. The sharp rise in the petrol prices is seen by the people as a harsh step taken by the government and it was received by a series of protests all over the country. People all over the country were protesting against the hike in petrol prices announced by the government little realizing that the government is helpless as it is already suffering a loss of crores of rupees by supplying petrol and diesel at subsidized rates.

Many economists are of the opinion that such a sharp rise in the oil prices is completely baseless and the powerful nations of the world should have talks with the oil producing Middle-east countries regarding the rise in prices. Some feel that a way to reduce these prices is to increase oil production. Few of the oil producing nations of the world have decided to increase the annual production of oil in order to bring down the rising oil prices under control.



MY VIEW ON THE RISING INFLATION

It is true that India is facing high levels of inflation and such high levels of inflation are not desirable for any economy. Inflation affects the fixed wage earners immensely. During inflation the purchasing power of the people goes down. Today food prices all over the world are rising. Vegetable prices have almost doubled. The reason is rising crude oil and steel prices all over the world. People are not missing an opportunity to lay the blame on the government. The opposition parties are openly criticizing the government for poor planning. With the elections due in less than a year the Congress government is already in a soup. But it is high time for people of our country to realize that the government alone can’t do anything. The rising inflation is a global issue. It is not that only India is facing the problem of the rising food prices. Countries all over are confronting this problem of how to tackle this rising inflation. We all should understand that the government alone cannot do anything. The government is suffering a loss of crores of rupees by supplying petrol and diesel at subsidized rates for the betterment of the society. The step taken by the government to raise he petrol and diesel prices recently was met by protests all over the country but we should understand that the government is also helpless. It is supplying us fuel almost one-third price at which it is purchasing them. We all will be benefited with this rise in petrol and diesel prices in the future indirectly.

In India we have a problem of blaming others not realizing that the person being blamed is not responsible for it. Same thing is happening today with all of us laying the blame on the government for rising inflation not realizing that the government is not responsible for it. India is not the only country in the world that is facing the problem of rising inflation. Even China and Brazil and many other countries are up against this problem of rising inflation. In China inflation is at 12% and in Brazil it is up at almost 9%. So I believe that instead of blaming the government for all this we should ourselves do something for our country and should try to tackle this problem of inflation.



CONCLUSION

I believe that it is not right for us to lay the blame on the government for this rising inflation. It is something beyond the control of the government because it is a global issue. So we all should come forward to face this problem. We should cut down our fuel consumption. In our country petrol and diesel is wasted by many. There is unnecessary consumption of petrol and diesel at a time when the supply is short. I think we should all realize that it is we who consume the petrol and diesel and only we can reduce the consumption. This is the only way out of the problem. We should all cooperate with the government in tackling this problem. The rising food prices also require our cooperation to be tackled. In our country we waste a lot of food. It is not that we have got food shortage in our country. We have loads of food grain stock in our country. We should utilize them and reduce their wastage since this is the only way out of this problem.

The rise in the food prices is mainly due to the rising crude oil prices. Thus the main root lies in the high crude oil prices. So in order to bring the situation under control we should first of all avoid fuel wastage and food wastage. All this cannot be done by the government by passing a few laws in this sphere. It is not possible until we ourselves realize and become ready to be a part of this fight against the rising inflation. So the government needs our cooperation. It is our own country and our own problem. We should put aside all this blaming business which is going on from quite a long time now and should do something ourselves.