India is deep down under the spiral of inflation and a lot of explanatory causes for the demon of price rise and inflation have been offered by the government that are nothing more than gimmicks on the name of economic policies of Indian government.
Food inflation rate this month is around 11.43% which is much more than normally expected. While inflation is a general problem of any centrally controlled economy which is regulated by the government through a central banking system (such as Indian economy controlled by RBI), no government ever act honest enough to take the responsibility of inflation and the consequential problems that a common man face. Indian UPA government too, while obviously knowing that inflation is because of the wrong monetary policies of government/RBI, never accepts the responsibility rather it tries to offer highly irrational ideas behind the cause of inflation and often blames the common men themselves for the corresponding inflation.
While inflation in general is a detrimental process, food inflation particularly hits the common citizens the most. This is because of the fact that everybody needs food to survive. While rich and middle class people do suffer because of inflated prices of food articles, the poor people faces the most of the burden of food inflation. Yet, government in place of trying to act fair dodges the responsibility and offers some ridiculously funny causes of inflation which are certainly false.
Some of the common causes of inflation as mentioned by the government are:
1)Speculation: government often complains that a few businessmen and traders try to collect food grains on speculations of future demand which creates an unnecessary lack of supply and hence prices of food articles goes high. Because of this reason only, the government has strictly banned wheat speculation and speculation of other food articles. However, this is certainly wrong and in fact, because of such irrational laws against inflation, a huge amount of wheat is wasted every year. Government isn’t able and efficient enough to store and safeguard all the surplus food grains in governmental store and warehouses and since private parties aren’t allows to store wheat and other grains, these grains often is wasted.
Speculation actually is an important aspect of free market that allows the society to use its resources in best possible manner. Speculators often stores important articles on their expectations of increased demand or decreased production and supply of those certain articles in near future. This offers a chance for people to attain a necessary article even in times of scarcity. Government however opposes the freedom of individuals to store grains as they blame the speculators that they may create an artificial scarcity in order to make profits. However, this would be irrational for speculators and traders to store a huge surplus of grains just to make profit in future because there is no way for them to store the grains for more than a limited a period safely and storing is also not very cheap and easy. By not allowing individual traders to store grains, the government potentially creates a situation of huge wastage of wheat, pulses, rice and other grains which further cause inflation and price rise.
2) Unpredictable Monsoon: every year, government blames the lack of monsoon rains or excess of rains as a reason for the wastage of necessary crops that creates a scarcity and hence price rise of food prices. While this can be a reason for a price rise for a certain period of time, such type of scarcity can easily be managed by means of proper speculative activities by businessmen and traders. Furthermore, if monsoon can really affect price rise, then there is no reason why government should let the excess grains produced during better climate conditions in a year with good monsoon being wasted upon in years when they say that monsoon isn’t proper. Also, monsoon is playing a role in the economic sector of whole Indian subcontinent since ages, so why is the food inflation so high at present?
3) Changing food habits of citizens: this is one of the most ridiculous and irrational reason offered by politicians for the cause of food inflation. In 2008, during his last days of tenure, former US president George Bush claimed that inflation in the United States is due to the increasing purchasing power of people of India and China which allows them to consume more. According to George Bush, increased consumption in Asia was the reason of scarcity in the United States and this scarcity was causing price rise in the US. Obviously he was wrong. Richness of people of a particular area of the world cannot be the cause of poverty in other parts.
Recently, Indian food minister K V Thomas also suggested that the changing food habits of Indians are becoming the cause of price rise or food inflation. K V Thomas said, “Food habits of people are changing. Their purchasing power is up. This is causing food inflation,
Even if we accept that the purchasing power of Indians is gradually increasing and hence they have started consuming more, we should realize that it is good sign. If the increased purchasing power is causing an increased demand, the producers must find incentive in increasing production of demanded articles. But this isn’t happening and that is why there is continuous food inflation since many years. Furthermore, if lack of supply is the reason for price rise of food articles, how will government explain the wastage of wheat and other food grains in government stores?
So what is the actual cause of inflation?
This should be noted that despite of huge population, India has achieved a significant increase in rate of production of food articles. The major cause of price rise of food articles is the inflation of Indian currency. When RBI increases the supply of currency in Indian market, it value decreases and hence the prices of necessary product increases. Thus, the entire fake scarcity and price rise is the result of the financial policies of the government and the RBI.
Can government decrease price rise?
Government should have no role in deciding or fixing for the prices of any product in the market. This is because when government fixes the prices, it fails to attain any competitive scale to fix the appropriate price of any product. On the other hand, free market forces allow traders and buyers to agree for a proper price in relation with the supply and demand situations. Thus, government should have no role in increasing or decreasing the prices of any product in the market.
How Prices can be Reduced
While the assumed way to decrease the prices is to increase the production infinitely, it seems impossible. However, prices can be substantially reduced by abolishing the process of unwarranted inflation through RBI for governmental economic policies. By adopting a proper gold standard while abolishing the fiat currency, we can reduce the rate of inflation to a reasonable degree which will ultimately reduce the prices of essential products.
It should be noted that inflation of fiat currency by government is actually nothing different from the indirect tax by the government. However, this form of tax is used to rob not only the rich and middle class, but the poor people are also forced to pay the price of inflation.