Sunday, May 25, 2008

Inflation in India

In this blog i am not trying to show my prowess in english. I would rather talk about the rising giant inflation in simple terms.

The UPA is having an arduous journey with the Inflation in India nearing the 8% mark. There can be various reasons for this burgeoning inflation but the Government is acting in a stealthy manner in this issue thanks to the nearing central elections.

How did the inflation start?
It is the upshot of the dramatic recession in US. The retreating supply could not meet the spiralling demand and the demand started to shoot up and the prices rose.

Why did the supply decline?
The supply declined in two major areas,food and oil.
US started using most of its agricultural land for bio-fuels which ultimately led to the decline in the growth of food crops. As Bush and Rice stated the quality of life in India has increased by leaps and bounds. The supply could not meet the demands of the increasing bourgeoisie in India and China. The diminution in the food supply led to the increase in prices which ultimately led to the inflation.This is the basic reason for increase in food prices.

Several other reasons complement this inflation. The most hazardous of all is the inflationary fears among the people. People started storing food for the future fearing further increase in price and the demand started increasing steeply. The lenders thought the other way and reduced the supply thinking they could sell the same when the inflation is more at a better price. This chain started and form then on there was no looking back for inflation

How did the oil price increase?
Oil price soared form $50 a barrel to $135 in no time and is expected to surge up to $200. 2 years back there was a decline in global crude oil prices and the Arab countries fearing further decline in the prices reduced their supply. Now albeit there is increase in demand the supply has not been increased. Iraq is yet to recuperate and other Arab countries have started to save oil for themselves. The decline in US dollar attracted other countries to buy more oil ( since oil barrel is sold in dollars) and the demand surged.Thus price of oil sky rocketed.

How can Indian government tackle the inflation better?
Awareness campaigns should be held to relieve people from inflationary fears. This would save the country from the indirect inflation. Also the technology in agriculture should be used better so that the growth increases. Inflation in food prices can see quick remedies and is of lesser importance. What about the inflation in oil prices?

Its a global problem and the remedy is not in the near future. So giving subsidies to petrol and diesel cant be done for a long time. By doing this the government is saving the middle class and the rich from the rising oil prices thus contributing indirectly to inflation. The oil price has to be directly passed to the public so that they plan accordingly and the demand reduces thus reducing inflation and the environment is also saved. This is my considered opinion.

1 comment:

Jickie said...

good job Karthik...