The theory on inflation needs to be relooked. Some random thoughts on Inflation
“Many of the economic challenges we face today stem from the neglect of supply side policies over the past decade or more” Augustine Carstens In Times of India.
At 14.55%, March Inflation hits four Months High In Business Line
Price Rise, geopolitical woes offset gains after third wave ended.---- RBI
Is it not time for the policy makers to think of some practical measures through improved administrative means to contain inflation? While inflation affects generally all, the fact remains that poorest of The poor gets affected the worst, the lower middle class suffer very badly and the middle class also gets hit to a great extent. The only class perhaps untouched by inflation is the Rich and the inflationary conditions enable them to become richer and enhance their wealth eventually. Money begets money.
Inflation also has its impact on the family bonds as the masses having hand to mouth existence are also subjected to emotional, physical, financial, psychological and social pressures which the practitioners of monetary theory containing inflation seem to miss out very badly. Mr Kaushik Bsau is right when he said" Inflation is an emotive matter and it gives rise, understandably,to popular resentment." The theory ‘Too much of money chasing too few goods does not appear to be fully relevant these days where war or geo political tensions induced inflation, imported inflation thanks to dynamics of exchange rates, interest rates, flow of international trade, funds seeking better avenues of investment also cause inflation when majority of the population remain poor and do not make any money. Similarly domestic inflation due to unexpected spread of pandemic disturbing all round growth of goods and services, faulty distribution of money caused by inequitable tax policies resulting in a few people accumulating wealth, lack of accountability and administration in the supply chain bottlenecks all cause inflation of a different kind where too shortage of money keep people away from demanding even the essential goods to survive. Demand driven inflation is understandable provided majority of the population enjoy reasonably good income, employment is high, production, and storage, transportation, and marketing and distribution of essential goods among the people are carried on smoothly by provision of cheap credit and other logistics. The Concept of Maximum Retail Price without relevance to the cost and the margin of profit, the applicability of GST to mass consumption goods without adequate justification to the affordability of the people linked to their income levels, non inclusion of fuel under GST, and all sorts of malpractices at ground level starting from greedy pricing without any check, hoarding, black marketing and operations of money lenders abetting all rules and regulations, corrupt practices, etc add to the supply chain bottlenecks resulting in high costs of the products. Man made inflation is more than money made inflation. Unfortunately and ironically, the irresponsible behaviour of media and not so enlightened public with all sorts of superstitious beliefs to live a life fulfilling religious sentiments in a competitive spirit get fully exploited by the market men by jacking up prices, a feature perhaps unique to our economy. Being an abnormal situation this sort of inflation needs an abnormal solution.
The honest and the people who care for ethics and values silently suffer the worst from inflation and its related consequences. The scenario of suffering due to high and uncontrolled inflation is more visible and pathetic in poorer countries as the affordability of the Rich and the Poor to withstand the cruel face of inflation varies drastically helping the Rich remain unruffled fortunately for them and allowing the poor to succumb to poverty driven pressures without being even noticed unfortunately. Poorest of the poor whose ambitions and aspirations are very limited cannot be expected to appreciate the difference between imported and domestic inflation. Even a one rupee increase in his expenditure without a matching increase in his income affects him financially, emotionally and psychologically is a fact which unfortunately does not seem to be appreciated or understood by the powers that be managing money and people. All are born equal but many get social and economic status based on manmade rules and regulations and majority live on hopes and expectations of Ache DIN which is elusive.
A very large segment of the population has no money to think of two square meals a day leave alone chasing goods even by thoughts. Shortage of money with many and surplus of money with a few cause imbalances in the society in such a way that frustration, desperation and depression multiply among the people leading to loss of productivity and the linked vicious circle. People do not have money and the gap between haves and have nots has been widening without any body’s concern though freebies rescue some at a very high cost and values to the society. Corruption plays havoc and those who make money by all possible means do not suffer from inflation and this segment of population is on the increase adding to demand induced inflation and miseries and worries to many as to how to survive, without any hope. Welfare living is almost forgotten.
The need of the hour is to reduce taxes for the poor for all their essential consumption goods, enhance administrative skills to contain all sorts of malpractices seen at various stages of production, storage, transportation, marketing including disposal of wastes, reduce corruption, enhance accountability, reduce black money and enhance tax collections through attractive and incentivised tax compliance and pursue soft policies encouraging very smooth flow of supply of all essential goods and services Public transportation system like Railways can definitely make the movement of essential goods fast, safe and cheap.
Time has come to seriously think of something more than traditional, rhetoric and initiate concrete measures in the equitable distribution of income rather than equitable levy of taxes from those who earn and those who do not earn. The affordability of a single person earning even around 2.50 lakhs and his struggle to survive with two or more family members including school going children caught in the ugly phase of inflation even for a few days and persons earning in lakhs and crores with multiple avenues to multiply incomes with or without taxes needs to be clearly recognised, realised, and factored into while making policies and implementing measures to contain inflation. Those who earn even Rs 2.50 lakhs per annum, the standard of life for them has no standard in these days of high inflation is the reality and hence there is a paramount need to have a comprehensive taxation policy benefiting the people, the Government and the economy by factoring to bring in under tax net all segments of population and sectors. While GST seems to be a wonderful option but excluding items like fuel from GST need to be reviewed and changes brought in early to rationalise tax rates and simplify tax collections for enhanced compliance. There seems to be no relationships between the outflow of money towards taxes from a poor man’s income and the outflow of money from a rich man’s income towards taxes. The money left with the poor for procuring very essential consumption goods needs to be considered while rationalising the taxes under GST, Direct taxes and other levies.
At ground level, majority of the masses do not differentiate between Fiscal and Monetary policy or imported inflation and domestic inflation. Their only aspiration is to survive I.E; eat to live, coexist with others and enjoy a peaceful, happy contented and safe life. By force or by design they lead a simple life and add values and ethics in the society. Simple living and High thinking preached by high and mighty is perforce practised by majority without thinking and they are by nature, following simple living. A blessing in disguise. Inflation should not spoil very simple aspirations of the majority of the people and they should not become poorer and poorer because of adverse effects of inflation.
Money is what money does. However, it cannot and should not be the cause of suffering for many. Inflation caused by money and its mishandling by a few ignoring the welfare of many needs to be tackled through very strong Governance System, sustainable, highly need based and result oriented fiscal and monetary measures in tune with the aspirations of the majority of the people. Interest in life has a direct link with real rate of interest is a reality and the need to protect real interest rate from high inflation rate is paramount. Health of the economy and health and wealth of the people cannot be exposed to the dangers of any form of inflation for want of effective and meaningful governance system.
Inequality widens faster if not checked in time. The fiscal and monetary policies if not aligned and aimed at growth and price stability simultaneously, inflation gets incentivised as a little poison to spoil the food. All said, the Country is fortunate to have all the potential with best of human resources to skilfully manage other resources abundantly available in the form of natural resources, technology, brain power, support systems like good culture, values, ethics and all ethos needed for making the economy a super power. The Readiness to move forward without any negative thoughts and actions is all that matters.
To end this write up, I would like to quote our famous Cartoonist late Mr R K Laxman on the issue of price rise that “True, our reforms have caused inflation, unemployment, increased debt, and sent prices soaring. But you will be happy to know that we have taken all these into account. We had to increase the prices on account of the fact that the cost went up because we put up the prices which was due to our hiking the prices”. (The best of R K Laxman pages 50,51)
As the taste of pudding is in eating, the result of various measures to contain inflation is to be judged from the happiness of the people in procuring very essential consumption items for survival within their affordability.
Dr T V G Krishnan
( This article appeared in Money Life on 28/04/2022).
