Inflation and Poverty

Inflation Index


The inflation has risen to 16 month high at 9.89 percent and the contributory factors are higher prices of fuel, supply problems due to draught conditions and increase in demand for the limited supplies caused on account of disproportionate and unequal level of incomes in the society. The steep rise in Minimium Support Prices may be one of the factors as the food inflation remains extra ordinarily high at 17.79 percent. The immediate cause for sudden increase in prices is because of the fuel price increase effected trough the budget which could have been avoided for the present although,the prices need to reflect the market trend and oil companies deserve relief. The timing was not favourable and inclusion of diesel price increase which had a cascading effect could have been intelligently postponbed.

Fighting inflation is fighting poverty and this requires altogother a different approach. The policy to contain inflation has to factor in among other things,the level of poverty in the economy, the consumtion pattern of majority of population, income levels,cost of production,distribution of products involving transportation,marketing,storage facilities,intervention of middlemen who take a major share of the profit at the cost of producers particulary farm products producers. Comparing global level of price trends,although ,needed in these days of interlinkages of economies, will not mean anything to a common man when he finds difficult to survive and make both ends meet.
It is time to have a relook on inflation index and the components which account for high inflation in an economy which has all the potential to perform well particulary on the inflation front.The economy should go in for two sets of inflation index one exclusively to take care of the poorest of the poor and the other to reflect the general price level for all. Poor peoples'needs and non-poor peoples'wants differ and the inflation index cannot be same for both categories.

Dr.T.V.Gopalakrishnan

Budget 2010-11

The budget for 2010-11 is neither growth oriented nor imaginative. It also lacks direction in which the economy is expected to move. The positives of the budget are the tax benefits passed on to income tax payers,some social security measures and minor concessions here and there in some areas which can at best take care of increases in costs on account of inflation. The negatives in the budget particularly the increase in excise duties on petroleum products, however ,offsets the positives and will have adverse impact on the economy in the form of inflation because of its cascading effect all around.
The expected budget deficit and containment of Government borrowings are only expectations and in the absence of any incentives/motivation to attract long term investments in the areas of industry,agricultural and exports how far they are achievable is a major question without any answer in the budget. The steps to contain the present and future inflation are not figuring in the budget.On the contrary the inflation can further move up with more money in the hands of tax payers, increase in fuel prices and not so impressive support system for growth in agricultural and industrial production provided in the budget.

Dr.T.V.gopalakrishnan

(Edited version of this appeared in Business Line dt27/02/10)