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The deteriorating global market due to the repercussions of global recession of 2008 has brought fiscal losses and unemployment in a large geo-economic area. Alike many developed and developing nations, India failed to keep her insulated from the ramifications of the global slowdown. Consequently, the economic monsters of fiscal-deficit and deteriorating currency imbued the vicious scourge of Price Hike into the market. A juxtaposition of the current face price of any arbitrary commodity in the market with that of the price before 2008 could insinuate the manifold increase in prices. The statistical data from the competent institutions like NSSO, RBI, Ministry of Finance, PMEAC and the Planning Commission corroborated the uncomfortably high percentage of inflation ranging near double digits from 8.0% to 11.0% at different quarters of the current financial year based on Consumer Price Index (CPI).
Taking account of the price hike in essential domestic commodities like food stuff and LPG could reveal the plight of millions households. The prices of milk and vegetables ratcheted in recent days have instilled upheaval in domestic budget of middle class families. The unruly price hike of diesel and petrol increases transportation costs which has cascading effects on the market commodities. The price of petrol in 2008 was nearly ` 45.00 per litre which has crossed an alarming high price line of ` 70.00 per litre throughout the country with little aberrations. The price of diesel experienced an exorbitant price hike of around ` 20.00 per litre from erstwhile low rate of approx. ` 30.00 per litre. The Indifference Curve of every middle class family has been lowered due to the constrained budget line which in turn diffuses dissatisfaction and engenders social unrest. The burning example of which is the contrived situation in the middle-east countries viz Tunisia, Egypt, Yemen, etc.
Inflation is the term used to denote the percentage growth in prices of goods and services with respect to their prices in some relevant base year. The perplexing price rise is a matter of studies for the eminent economists of every epoch. As a matter of fact, the effect of price rise is both negative and positive in economic terms. Enumerating the reasons of price rise we encounter terms like, monetary inflation, black-marketing, unmatched demand and supply, market monopoly and business accession. Let us demystify the terms one by one, starting with monetary inflation. The problem of monetary inflation indicates a situation of excessive money supply in market which corrodes the real value or the purchasing power of currency. Hence, each unit of currency could fetch fewer amounts of commodities and services. Black-Marketing refers to the depraved act of a few manufacturer and stockiest who hoard the product in godown to artificially inflate the price in order to reap larger profit in future. The unmatched demand and supply has both negative and positive effect on prices of goods and services. If the demand is more than the total potential of supply then the price rises and if the supply is more than potential demand then the price fells. Market monopoly and business accession are two faces of the same coin. When a big giant manufacturer takes over the business of several small enterprises, the competitions in the market evaporate, precipitating back monopoly into the market.
Price hike is akin to a viral disease which insidiously affects a larger section of society and brings infrastructural annihilation. Apart from the direct conundrums, it leads to a sudden drop in demand due to contained purchasing capacity of buyers. The drop in demand is counter balanced by drop in production which means drop in exigencies of variable factors of production, e.g. labour, raw-material, running cost, etc. The drop in labour-requirement unleashes devastating unemployment and under-employment in society. The capitalists face another species of problem simultaneously where the expenditure on fixed factors of production remains equal to the pre-fall demand situation because the fixed factors cost are levied on infrastructure, long-run investment, insurance premium, rent, etc. which are inert to short-run aberrations in total quantity produced. Hence, it bolsters the increase in Average Total Cost of production. This double faceted situation, on one hand deteriorate the purchasing capacity of market while on the other hand it incur loss of capital and thus lead to shut-down of factories in financial crisis which in turn further aggravate the problem of unemployment thus lowering further the purchasing capacity.
Trade deficit is yet another implication which is a negative effect of inflation or the price hike where the domestic market gets dearer. It promotes imports over exports which results in loss of foreign exchange. Besides, the difference in imports and exports result in trade deficit. The price hike has a good effect on an economy at initial level and under a comfortable zone of 2%-3%. It leads to growth in economy by increasing demand. Thus result in employment opportunities. An economy toils to fend off the exaggeration of inflation through monetary policies and fiscal policies. The central bank of a nation is equipped with the tools like bank-rate, cash reserve ratio and bank security. When the inflation crosses the level of ease to the level of discomfort, the central bank of a nation, Reserve Bank of India in ours case, increases the bank rate i.e. Repo Rate, Reverse Repo Rate and Marginal Standing Facilities. This result in higher interest rate on loans which deter public from taking loans whereas promote saving to attract higher interest from the bank. In both the case, the cash is revoked from the market which helps to resist the fall in real value of currency. The Cash Reserve Ratio is required to be maintained by the commercial banks to the Reserve Bank of India which also help in revocation of liquidity from the market. The bond and securities sold by the Reserve Bank of India to the commercial banks is yet another apparatus to revoke the liquidity from the market. Besides, the government levies taxes of different forms to curb the inflation.
Price hike or the inflation is a necessary evil of a growing economy such as ours which could be tamed through suitable and sustainable measures. The efforts of economists have formulated several tactics to maintain the inflation at the zone of comfort. The problem of price hike is a problem faced by common people; hence it is the infallible duty of the Indian Government and the Economists to bring it under control whereas it is the duty of the People to proliferate the technical aspects of inflation among unapprised masses.