There is one question that is troubling me the most since my exams got over a couple of weeks back. Why are the prices hitting sky and beyond even though our economy is running under negative inflation? I am not an economist but still the curiosity to understand what is going on around us rings an alarming threat that we could witness in very near future. After a deep analysis I am convinced that it is nothing but a simple case of supply vs demand issue. Is the matter so simple? Not really! In the quest of showing up a dramatically sustainable growth by a developing country, we are heading in the worst possible direction.
Let me elaborate on what I mean. Our government is trying hard to give all possible kind of sops for certain class of people to ensure the vote bank and to woo people to stay in power for ever. Just to quote an example, consider the price of rice. A common man has to shell out atleast Rs 35/- per kg, where in through public distribution system majority of the Indian population is getting at a price of around Rs 2 to 5 in various states. Why do we have such a huge difference for the same commodity? Root cause may be affordability for them. Actually, it is not. The true root cause is middle man. A farmer in India gets around Rs 1000/- as the minimum support price per quintal(100 kgs). Given this price as the baseline, it can’t go beyond 100% increase from its actual value even if it reaches a common man through supply management chain. Ideally the price should have been around Rs 20/- per kilo including grain refinement, transport, taxes etc., To add to this, the nature hasn’t been the same as before. Irregular rainfalls, ever decreasing ground water levels, floods, chemical fertilizers, pesticides etc., adding their part of woes too! The major concern is with the middle men between the producer and consumer which is actually killing the economy. My strong argument is that, these middlemen are creating a non-existent demand supply imbalance and that is leading to unprecedented hike in the price of groceries. Shopping malls have become a symbol of developing nations. To take a name Big Bazaar has about 1000+ malls in the country. Each such mall will have at least 10 quintals of rice in stock. They are purchasing from various places as if there is no tomorrow. This is causing a pseudo shortage in market, in turn pushing the price by a bit more. Is this the kind of eco-system we want to live in? Since here exists such a huge gap between producer and consumer in the form of a middle man, the affordability has gone to extremes. To feed those below poverty line, government has to provide rice through PDS at a subsidized rate. This boils back to Tax Payer! So, where would you attack this problem? Can you solve this forever through PDS or you want to tackle the ‘middle men’? For our governments stock market is everything, corporate India is the face of the nation and they tweak all rules to protect the corporates.
Similarly, crude oil prices have gone up and related companies are bearing the burn out. So, increase the oil prices and keep the corporate India and stock market happy again. What is the ripple effect of such a steep hike in petrol and diesel? Does any concerned person care about such things? Our ministers want to be loyal to those companies because they give the funds to parties when they need the most, which is absolutely tax free! No wonder we have the prices going high and high even under negative inflation! Jai Ho India…
I have shared my thoughts on consumer side so far, the story on the producer side is even more devastating because of our great politicians policies. I will write about farmers woes in my next post. In the meanwhile, I have a question for you all… are we heading in the right direction? Think about it.