Important Points Of Inflation

The causative factors at the initial stages were the sudden boom in global commodity--12rices which transmitted to the Indian economy.

• The gradual accumulation of steam in inflation was now again led by commodity prices, but this time the push came from domestic causes. The government to its credit over the last few years has pumped in additional purchasing power in rural India through the NREGA and other better directed schemes. So the impoverished ends of villages are now demanding a better life chance, meaning more food. This is one of the reasons why food inflation refuses to go away.

Inflation Basics:

Inflation may be caused due to several economic factors:

• When the government of a country prints money in excess, prices increase as there is too much money in circulation chasing too few goods.
• Increase in production and labor costs have a direct impact on the price of the final product, resulting in inflation.
• When countries borrow money they have to cope with the interest burden. This interest burden may result in inflation.
• High taxes on consumer products can also lead to inflation.
• Demand pull inflation is when the economy demands more goods and services than what is produced.
• Cost push inflation or supply shock inflation is when non availability of a commodity would lead to increase in prices.

The problems due to inflation would be:

• When the balance between supply and demand goes out of control, consumers could change their buying habits forcing manufacturers to cut down production.
• Inflation can create major problems in the economy. Price increase can worsen poverty, affecting low income household,
• Inflation creates economic uncertainty and is a dampener to the investment climate, slowing growth and finally reducing savings and thereby cutting consumption.
• The producers would not be able to control the cost of raw material and labor and hence the price of the final product. This could result in less profit or in some extreme case no profit, forcing them out of business.
• Manufacturers would not have an incentive to invest in new equipment and new technology.
• Uncertainty would force people to withdraw money from the bank and convert it into product with long lasting value like gold, artifacts.

Migration Food Inflation

• Food commodity driven inflation has become a persistent phenomenon and the corrective measures involve concerted efforts over in extended period of time with public investments already hiked substantially in the recent years, there is now a need to pay attention to improve efficiency of such investment As area available agriculture and food production is going to shrink.
• Focus should be given enhancing the productivity of crops to keep pace with growing demand for food.

1. Focus should be given on enhancing the productivity of crops to keep pace with growing demand for food.
2. Overhaulting the PDS is another corrective measure which can be undertaken in the medium term.
3. Piling up of food grains in the granary beyond the stipulated levels is an avoidable proposition. Resorting to open market sales at specific intervals would help in both relieving the granary of excess stocks and checking the build up of rices in the domestic market simmultaneously.
4. It is also logical to widen the scope of PDS by including more essential commodities like pulses, edible oils and sugar, to provide some protection to the poor against food inflation.
5. However, it is not clear wheather expansion in PDS coverage to inflation or it is adding to food inflation because of rising in subsidies and leakages in our delivery system.
6. Resorting to food imports can help in checking domestic prices to make up the supply shortfalls, provided imports are plannes on time. Our past experiences with wheat imports turning costlier with international prices moving up with India's decision to go for import. We need to develop a system for getting advance information on demand and supply imbalances and tune our trade policy accordingly.
7. As an immediate remedy, all steps to prevent hoarding and speculation in food commodities have to be expedited.
8. The States should be proactive to forego some taxes on account of interstate transport of commodities at least for the time being till the prices of inputs used in agriculture.