INFLATION
In today’s world no developing country can afford to isolate itself from the world economy. The benefits of outward-looking policies that help in taking advantage of the possibilities of international trade and capital flows are extensively discussed in the literature. In the 1990s, economic liberalization, globalization and openness have become the buzzwords. There has been a distinct shift in favor of greater integration of the world economy. The trend has been towards greater opening up and there is evidently a move away from the typical closed economy structure in most of the developing economies.
Inflation, an almost forgotten economic problem till recently, now hogs headlines. Rising inflation is one of the biggest stories of recent weeks and has received a great deal of attention from the media and political parties. At the same time inflation is an economic problem that the average person meets on a daily basis in terms of higher prices particularly of food products.
Inflation seems to be surging to unprecedented high levels encompassing the whole world and giving an ironic touch to the very meaning of growth. All that economic growth and development that garnered a lot of praise during the past few months is fast turning into mere pathos.
Inflation has obvious costs to an economic and social system. A high rate of inflation could lead to substantial resources being wasted in inefficient transactions and speculation, and it destroys the basis for rational economic decisions and damages the credibility of most of the government policies. Rising price levels are taking a toll on the world with the common public witnessing a nightmarish experience in living their simple lives within their budgetary requirements. The situation seems to be deplorable and is expected to worsen in the near future. Can this problem of inflation be controlled in the present world scenario? This remains the most prized and high voltage question being popped before our world leaders who are really finding it difficult to balance the equation of growth versus inflation.
“I believe that we have all at some time eaten the fruit from trees that we did not plant. In the fullness of time, when it is our turn to give it behooves us in turn to plant gardens that we may never eat the fruit of, which will largely benefit generations to come, I believe this is our responsibility one that I hope you will shoulder in time” These are the words which were given by Mr.N.R Narayana Murthy Chairman of the board and chief mentor of Infosys technologies limited one time in his past life and these words can do something in solving our present problem which is called “Inflation-The current biggest worry” if India wishes to avoid volatility in food prices ,the only option is to become self sufficient.
As inflation rate, as measured by annual point-to-point increases in the Wholesale Price Index (WPI) accelerates, governments across the globe tend to panic and rush out with anti-inflationary packages. The problem is that governmental panic itself has become a new cause of further inflation. That is why inflation in India and in other developing countries may not fall anytime soon.
The rising graph of inflation has had its place in the front pages of all national dailies of the country in the past few days. Inflation rates of as high as 7.33% have been recorded in the past few weeks. But if we closely analyse the situation then the problem is not just unique to India but it has become a global issue with India still enjoying a fairly decent standing as far as curbing the high rates of inflation are concerned. India’s price index could be the envy of its neighbours and other friendly nations. Myanmar is facing inflation to levels of 20% while in Sri Lanka the price index has crossed the 15% mark. The condition of Zimbabwe seems to horrible and pitiable with inflation levels of as high as 1000%.Even the developed countries are finding it difficult to curb the growing spate of price-rise with Switzerland’s price index hitting 2.6%,a new high in the country’s history since the past fourteen years. So it seems no country has managed to escape the painful whip of inflation in the past few months.
India’s Inflation is high today because of food prices ,crude oil and commodity prices .India is a marginal importer of wheat ,a large importer of edible oil ,pulses and a very large importer of fertilizers ,which are necessary to grow food ,we are therefore vulnerable to very high prices of food ,so India need to promote high agricultural growth ,well there are some other factors also which are causing rise in inflation and that is our Indian Market .
Inflation comes in many varieties. The worst variety is food-led inflation especially in a poor country like India where half or more of family spending is on food. Overall, wholesale price inflation has rose from less than four per cent at the end of December 2007 to more than seven per cent today. Consumer prices are rising even faster because of consumer panic. Newspaper reports suggest that in some cities the consumer price of rice is up 20%, edible oils 40%, dairy products 12% and some pulses 20%.
The commodities which have suffered most severely due to inflation and are in a way solely responsible for the surging price index are oil, food and fertilizers. The name of the commodities itself suggest the magnitude of their importance to the common man. Oil prices have already recorded 115$ per barrel in the past few days and the problem seems pretty grim for the future as well, with world oil reserves fast getting sucked up and there is a misfortunate absence of new reserves.
The fertilizer scene seems to be worse. The world price of urea, which was only 175$ per tonne in 2004 rose to a whopping 415$ per tonne in early April, 2008.The major exporter of fertilizers of the world which includes Russia and China have increased export duties to a level that in a way has inhibited the export of fertilizers. Panic has swept through the world market. India had to import 1.8 million tonnes of wheat in 2007 at prices 50% higher than the domestic procurement price. Even the domestic procurement price has shot up to 11%.Prices of oil, food and fertilizers do not show any signs of deflation in the near future making life really difficult for the common man.
The government had already banned the export of wheat last year, and has now banned the export of maize and pulses. It has raised the minimum export price of rice to $1,000/tonne, at which price only the luxury basmati variety can be exported economically. Import duties on edible oil and grain have been abolished. This means that the government's focus has suddenly shifted from protecting Indian farmers against cheap imports to protecting the consumer by cheapening imports.
Our Indian market is totally a retail market driven by small hedgers ,producers ,exporters ,importers ,processors or small speculators ,so at somewhere our Indian market is dependent on international market .In international market prices are rising that’s why its giving a effect on our Indian market prices and this pressure on the economy would continue till international prices decline .India is a major importing country so in this way we can say we are importing INFLATION also in our country ,unless international prices decline we will be under pressure .
India’s and China ‘s high rate of economic growth which is driving up the demand for commodities in the world and the result is Inflation. Well now there is a sign of relief as the annual rate of inflation eased to 7.14 percent for the week ended April 5 from the previous week’s forty month high of 7.41 percent .so today there is a need of taking some responsible steps by our government so that this generation get some benefit and in future we can think that our government could not help to properly control the inflation but at least our government has taken some positive steps to stagnate inflation.
Can these measures control inflation? Prices are shooting up in India not because of drought or production shortfalls. Indeed, the harvest this year may be among the highest ever. The problem is that world prices have skyrocketed. And we live in an era of internet-savvy farmers who know exactly what food prices are in Chicago and London, and adjust their own actions accordingly. The government hopes that by banning exports, it can keep Indian food prices well below world prices.
This may be possible temporarily for wheat, since wheat harvesting is in full swing right now. But wheat farmers know well that world prices are 40% higher than in India. So many farmers, especially the bigger ones, will hold back their crop during the coming procurement season, hoping to sell at much higher prices in later months. That in turn will mean lower wheat arrivals in the procurement season - maybe only 12 million tonnes instead of the expected 15 million tonnes. And that shortfall will further spur inflationary expectations.
The problem is being compounded by global panic. Two successive droughts in Australia, plus the diversion of one-third of the US maize crop to ethanol, have led to shortfalls in world production and low food stocks.
Many food-deficit countries have sought to import more. In consequence the world price of rice in the last six months has shot up 60%, wheat by 40%, and soybean oil by 40%.
Exporting countries were initially happy with rising export prices. But as world demand pushed their domestic prices to alarming levels, exporting governments began imposing curbs on exports to tame local prices. But this reduced supplies to the world market, and sent world prices spiraling even higher. Thus, panicky efforts to curb food prices through export bans have, unwittingly, exacerbated inflation.
Ukraine, one of the biggest wheat exporters in the world, has curbed exports. So have Russia and Kazakhstan. Argentina has levied high export taxes on soybean and beef exports. India, Vietnam, Indonesia and Cambodia have curbed rice exports. So too has Thailand, traditionally the world's biggest rice exporter. This has created panic in Thai markets. Far from falling, the price of rice jumped up by $ 75/tonne in Thailand last week, since its export curbs sent world prices up further, and had a knock-on effect on local prices.
The government is gung-ho in curbing inflation as the next year is an election year which is going to decide the fate of the present government. As far as curbing rising oil prices are concerned the government has tried its level best in this regard but the ways of covering the losses of oil companies through bonds has only deepened the fiscal deficit of the country. Forecasts of a good crop harvest in the near future in India and USA also show some positive signs with food prices expected to ease up a little though the change is feared to only negligible.
The Reserve Bank is doing its bit to curb inflation by allowing the rupee to appreciate in comparison to the dollar to cut the cost of imports. Even import duties on several items have been cut to a great extent to ease the cost of imports. The other measures taken by the Reserve Bank include increasing the cash reserve ratio to 0.5 but this has had very little effect. The government seems to have taken recourse to providing subsidies to the companies to cover their losses but these measures will only widen the fiscal deficit jeopardising the country’s interests. So the measures that have been taken by the government seem thoroughly inadequate as they have hardly created any serious impact to reverse the advance of inflation. The only solution seems to be proper fiscal and monetary measures besides those that have already been taken but that will be on the cost of shortening down the economic growth story of the country.
There are some steps that our government should take, these steps are-
First is our Indian government has to make strategy for maintaining high growth while keeping prices fairly stable is to increase productivity ,ameliorate skills shortages and add capacity through investments ,monetary policy will continue to play a critical role in maintaining price stability
Second India has to build it buffer stocks again because becoming import dependent for food is a scary scenario Third is state government should take effective action against hoarders and black marketers.
Other things are people’s participation which is also necessary to check inflation. People should cut down the demand by judicious use and preservation of food items and then also supply of food at controlled prices through the public distribution system for mitigating the effects of inflation .
Along with population control ,the export of routine consumption goods needs to be banned and also if price stability means sacrificing a bit of growth then our government will have to sacrifice a bit of growth in order to maintain price stability ,so presently government needs to take a hard look at such option for early implementation ,so I would say government has to be prepared and willing to take some hard and responsible decisions which are necessarily to mitigate the rising distress level of the common man .
Curbing exports is a form of national hoarding. If every country tries to hoard food, food prices will naturally rise. Governments would like to believe that hoarding by traders is terrible, whereas hoarding by governments promotes the public interest. But the impact on prices is exactly the same in both cases. Indeed, when governments start to hoard food out of panic, the panic itself stokes further inflationary fears. The government thinks it is improving domestic supplies and hence bringing down prices. In fact the government is adding to the global hoarding problem, and stoking panic too. So we can expect food inflation to keep rising in coming months.
The roots of today's food inflation are global, and cannot be tackled by the Indian government in isolation. Inflation will come down only when world food production rises, and world prices fall. That cannot happen immediately. But the prospects for 2009 are not bad. After two droughts in a row, the chances are that Australia will have a good crop this year. Today's high prices ought to induce farmers across the globe to grow more. The resultant bumper harvest could cool prices by early 2009 thereby controlling inflation.
Inflation can come under in a controlled state if our government and every sector of India behave responsibly than we can expect some fruitful results in future and for all this to happen we all have to be patient ,Do not expect miracles because it will take some time so at last I would say we all Indians should adapt this policy which is called WAIT AND WATCH POLICY .
History is testimony to the fact that neither growth nor recession can go on forever. Everything has a definite time-span prescribed for it. Only human beings can increase the longevity of this cycle or cut it short by their sheer prudent ways and measures. Presently the world is experiencing a recessionary move with inflation being the prima-facie and it’s up to the world population and its leaders to take recourse to measures that can curb the trend. New oil wells should be discovered to cover the shortage of oil reserves and ease up the growing oil price rise. There should be recourse to cleaner sources of energy like nuclear energy on a mass scale to ease up the pressure on the fast depleting non-renewable resources.
New scientific method should be adopted and research should be given a top priority to usher in another green revolution to cover the acute shortage of edible crops. Governments of all nations should bury their internal squabbles and come together at a common forum to discuss and device new measures to cut the growing fangs of this behemoth monster of inflation which has created a woeful global scenario of unprecedented magnitude.
In today’s world no developing country can afford to isolate itself from the world economy. The benefits of outward-looking policies that help in taking advantage of the possibilities of international trade and capital flows are extensively discussed in the literature. In the 1990s, economic liberalization, globalization and openness have become the buzzwords. There has been a distinct shift in favor of greater integration of the world economy. The trend has been towards greater opening up and there is evidently a move away from the typical closed economy structure in most of the developing economies.
Inflation, an almost forgotten economic problem till recently, now hogs headlines. Rising inflation is one of the biggest stories of recent weeks and has received a great deal of attention from the media and political parties. At the same time inflation is an economic problem that the average person meets on a daily basis in terms of higher prices particularly of food products.
Inflation seems to be surging to unprecedented high levels encompassing the whole world and giving an ironic touch to the very meaning of growth. All that economic growth and development that garnered a lot of praise during the past few months is fast turning into mere pathos.
Inflation has obvious costs to an economic and social system. A high rate of inflation could lead to substantial resources being wasted in inefficient transactions and speculation, and it destroys the basis for rational economic decisions and damages the credibility of most of the government policies. Rising price levels are taking a toll on the world with the common public witnessing a nightmarish experience in living their simple lives within their budgetary requirements. The situation seems to be deplorable and is expected to worsen in the near future. Can this problem of inflation be controlled in the present world scenario? This remains the most prized and high voltage question being popped before our world leaders who are really finding it difficult to balance the equation of growth versus inflation.
“I believe that we have all at some time eaten the fruit from trees that we did not plant. In the fullness of time, when it is our turn to give it behooves us in turn to plant gardens that we may never eat the fruit of, which will largely benefit generations to come, I believe this is our responsibility one that I hope you will shoulder in time” These are the words which were given by Mr.N.R Narayana Murthy Chairman of the board and chief mentor of Infosys technologies limited one time in his past life and these words can do something in solving our present problem which is called “Inflation-The current biggest worry” if India wishes to avoid volatility in food prices ,the only option is to become self sufficient.
As inflation rate, as measured by annual point-to-point increases in the Wholesale Price Index (WPI) accelerates, governments across the globe tend to panic and rush out with anti-inflationary packages. The problem is that governmental panic itself has become a new cause of further inflation. That is why inflation in India and in other developing countries may not fall anytime soon.
The rising graph of inflation has had its place in the front pages of all national dailies of the country in the past few days. Inflation rates of as high as 7.33% have been recorded in the past few weeks. But if we closely analyse the situation then the problem is not just unique to India but it has become a global issue with India still enjoying a fairly decent standing as far as curbing the high rates of inflation are concerned. India’s price index could be the envy of its neighbours and other friendly nations. Myanmar is facing inflation to levels of 20% while in Sri Lanka the price index has crossed the 15% mark. The condition of Zimbabwe seems to horrible and pitiable with inflation levels of as high as 1000%.Even the developed countries are finding it difficult to curb the growing spate of price-rise with Switzerland’s price index hitting 2.6%,a new high in the country’s history since the past fourteen years. So it seems no country has managed to escape the painful whip of inflation in the past few months.
India’s Inflation is high today because of food prices ,crude oil and commodity prices .India is a marginal importer of wheat ,a large importer of edible oil ,pulses and a very large importer of fertilizers ,which are necessary to grow food ,we are therefore vulnerable to very high prices of food ,so India need to promote high agricultural growth ,well there are some other factors also which are causing rise in inflation and that is our Indian Market .
Inflation comes in many varieties. The worst variety is food-led inflation especially in a poor country like India where half or more of family spending is on food. Overall, wholesale price inflation has rose from less than four per cent at the end of December 2007 to more than seven per cent today. Consumer prices are rising even faster because of consumer panic. Newspaper reports suggest that in some cities the consumer price of rice is up 20%, edible oils 40%, dairy products 12% and some pulses 20%.
The commodities which have suffered most severely due to inflation and are in a way solely responsible for the surging price index are oil, food and fertilizers. The name of the commodities itself suggest the magnitude of their importance to the common man. Oil prices have already recorded 115$ per barrel in the past few days and the problem seems pretty grim for the future as well, with world oil reserves fast getting sucked up and there is a misfortunate absence of new reserves.
The fertilizer scene seems to be worse. The world price of urea, which was only 175$ per tonne in 2004 rose to a whopping 415$ per tonne in early April, 2008.The major exporter of fertilizers of the world which includes Russia and China have increased export duties to a level that in a way has inhibited the export of fertilizers. Panic has swept through the world market. India had to import 1.8 million tonnes of wheat in 2007 at prices 50% higher than the domestic procurement price. Even the domestic procurement price has shot up to 11%.Prices of oil, food and fertilizers do not show any signs of deflation in the near future making life really difficult for the common man.
The government had already banned the export of wheat last year, and has now banned the export of maize and pulses. It has raised the minimum export price of rice to $1,000/tonne, at which price only the luxury basmati variety can be exported economically. Import duties on edible oil and grain have been abolished. This means that the government's focus has suddenly shifted from protecting Indian farmers against cheap imports to protecting the consumer by cheapening imports.
Our Indian market is totally a retail market driven by small hedgers ,producers ,exporters ,importers ,processors or small speculators ,so at somewhere our Indian market is dependent on international market .In international market prices are rising that’s why its giving a effect on our Indian market prices and this pressure on the economy would continue till international prices decline .India is a major importing country so in this way we can say we are importing INFLATION also in our country ,unless international prices decline we will be under pressure .
India’s and China ‘s high rate of economic growth which is driving up the demand for commodities in the world and the result is Inflation. Well now there is a sign of relief as the annual rate of inflation eased to 7.14 percent for the week ended April 5 from the previous week’s forty month high of 7.41 percent .so today there is a need of taking some responsible steps by our government so that this generation get some benefit and in future we can think that our government could not help to properly control the inflation but at least our government has taken some positive steps to stagnate inflation.
Can these measures control inflation? Prices are shooting up in India not because of drought or production shortfalls. Indeed, the harvest this year may be among the highest ever. The problem is that world prices have skyrocketed. And we live in an era of internet-savvy farmers who know exactly what food prices are in Chicago and London, and adjust their own actions accordingly. The government hopes that by banning exports, it can keep Indian food prices well below world prices.
This may be possible temporarily for wheat, since wheat harvesting is in full swing right now. But wheat farmers know well that world prices are 40% higher than in India. So many farmers, especially the bigger ones, will hold back their crop during the coming procurement season, hoping to sell at much higher prices in later months. That in turn will mean lower wheat arrivals in the procurement season - maybe only 12 million tonnes instead of the expected 15 million tonnes. And that shortfall will further spur inflationary expectations.
The problem is being compounded by global panic. Two successive droughts in Australia, plus the diversion of one-third of the US maize crop to ethanol, have led to shortfalls in world production and low food stocks.
Many food-deficit countries have sought to import more. In consequence the world price of rice in the last six months has shot up 60%, wheat by 40%, and soybean oil by 40%.
Exporting countries were initially happy with rising export prices. But as world demand pushed their domestic prices to alarming levels, exporting governments began imposing curbs on exports to tame local prices. But this reduced supplies to the world market, and sent world prices spiraling even higher. Thus, panicky efforts to curb food prices through export bans have, unwittingly, exacerbated inflation.
Ukraine, one of the biggest wheat exporters in the world, has curbed exports. So have Russia and Kazakhstan. Argentina has levied high export taxes on soybean and beef exports. India, Vietnam, Indonesia and Cambodia have curbed rice exports. So too has Thailand, traditionally the world's biggest rice exporter. This has created panic in Thai markets. Far from falling, the price of rice jumped up by $ 75/tonne in Thailand last week, since its export curbs sent world prices up further, and had a knock-on effect on local prices.
The government is gung-ho in curbing inflation as the next year is an election year which is going to decide the fate of the present government. As far as curbing rising oil prices are concerned the government has tried its level best in this regard but the ways of covering the losses of oil companies through bonds has only deepened the fiscal deficit of the country. Forecasts of a good crop harvest in the near future in India and USA also show some positive signs with food prices expected to ease up a little though the change is feared to only negligible.
The Reserve Bank is doing its bit to curb inflation by allowing the rupee to appreciate in comparison to the dollar to cut the cost of imports. Even import duties on several items have been cut to a great extent to ease the cost of imports. The other measures taken by the Reserve Bank include increasing the cash reserve ratio to 0.5 but this has had very little effect. The government seems to have taken recourse to providing subsidies to the companies to cover their losses but these measures will only widen the fiscal deficit jeopardising the country’s interests. So the measures that have been taken by the government seem thoroughly inadequate as they have hardly created any serious impact to reverse the advance of inflation. The only solution seems to be proper fiscal and monetary measures besides those that have already been taken but that will be on the cost of shortening down the economic growth story of the country.
There are some steps that our government should take, these steps are-
First is our Indian government has to make strategy for maintaining high growth while keeping prices fairly stable is to increase productivity ,ameliorate skills shortages and add capacity through investments ,monetary policy will continue to play a critical role in maintaining price stability
Second India has to build it buffer stocks again because becoming import dependent for food is a scary scenario Third is state government should take effective action against hoarders and black marketers.
Other things are people’s participation which is also necessary to check inflation. People should cut down the demand by judicious use and preservation of food items and then also supply of food at controlled prices through the public distribution system for mitigating the effects of inflation .
Along with population control ,the export of routine consumption goods needs to be banned and also if price stability means sacrificing a bit of growth then our government will have to sacrifice a bit of growth in order to maintain price stability ,so presently government needs to take a hard look at such option for early implementation ,so I would say government has to be prepared and willing to take some hard and responsible decisions which are necessarily to mitigate the rising distress level of the common man .
Curbing exports is a form of national hoarding. If every country tries to hoard food, food prices will naturally rise. Governments would like to believe that hoarding by traders is terrible, whereas hoarding by governments promotes the public interest. But the impact on prices is exactly the same in both cases. Indeed, when governments start to hoard food out of panic, the panic itself stokes further inflationary fears. The government thinks it is improving domestic supplies and hence bringing down prices. In fact the government is adding to the global hoarding problem, and stoking panic too. So we can expect food inflation to keep rising in coming months.
The roots of today's food inflation are global, and cannot be tackled by the Indian government in isolation. Inflation will come down only when world food production rises, and world prices fall. That cannot happen immediately. But the prospects for 2009 are not bad. After two droughts in a row, the chances are that Australia will have a good crop this year. Today's high prices ought to induce farmers across the globe to grow more. The resultant bumper harvest could cool prices by early 2009 thereby controlling inflation.
Inflation can come under in a controlled state if our government and every sector of India behave responsibly than we can expect some fruitful results in future and for all this to happen we all have to be patient ,Do not expect miracles because it will take some time so at last I would say we all Indians should adapt this policy which is called WAIT AND WATCH POLICY .
History is testimony to the fact that neither growth nor recession can go on forever. Everything has a definite time-span prescribed for it. Only human beings can increase the longevity of this cycle or cut it short by their sheer prudent ways and measures. Presently the world is experiencing a recessionary move with inflation being the prima-facie and it’s up to the world population and its leaders to take recourse to measures that can curb the trend. New oil wells should be discovered to cover the shortage of oil reserves and ease up the growing oil price rise. There should be recourse to cleaner sources of energy like nuclear energy on a mass scale to ease up the pressure on the fast depleting non-renewable resources.
New scientific method should be adopted and research should be given a top priority to usher in another green revolution to cover the acute shortage of edible crops. Governments of all nations should bury their internal squabbles and come together at a common forum to discuss and device new measures to cut the growing fangs of this behemoth monster of inflation which has created a woeful global scenario of unprecedented magnitude.