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Is price hike the solution of economic stability?

Updated on August 7, 2014

Top Reasons for price hike

Some of the reasons for increase in prices include:
1) Black marketing
In simple terms it means keeping the inventories and then selling it at an increased price. In a way, it creates unreal deficiency in the economy despite increase in production and thus results in price rise.
2) Black money
As per the reports in the year 1999-2000 in India, there was almost Rs. 7800 crores undocumented or black money. Black money increases the demand of goods and services in the economy and thus lead to increase in general price level.
3) Increasing population
The increasing population means more mouths to feed which leads to more demand as compared to supply, thus resulting in price rise.
4) Deficit financing
Deficit financing means printing more currency notes and coins. This results in increased supply of money in the economy. But if increase in supply of money is more than the increase in the supply of goods and service there is a price hike.
5) Corruption
Corruption occurs at all levels of society. It is the root cause of increase in prices.

Rising prices of daily commodities

Presently, India is faced with many problems like that of corruption, unemployment, illiteracy, increasing population etc. But the problem of price rise is one of the fundamental problems that our country is facing. In a developing economy like India's some amount of price rise is necessary. As the level of income rises due to fresh opportunities, the demand increases. To fulfill the demands of the people there is a need to increase the supply and hence a rise in prices. But if the prices are raised beyond a certain limit, it can disrupt the economy.

The rising prices of daily commodities has today become the main political issue. Is government responsible for the rising prices? Can government control it? To get a better understanding lets look at some of the reasons for price hike.

In the process of economic development prices do rise. But in India the price hike is much higher than what it should be.

Corruption and price rise

Corruption leads to improper distribution of wealth, which, in turn, means that a large amount of capital in a few hands leads to consumption of luxury goods. In other words, capital is used in consumption-related and other imports instead of using it to import machinery and capital goods which can increase the supply to meet the growing demands. This leads to deficient supply of primary goods and services, thus to an increase in prices. This type of an economy causes inflation. Do you think that if corruption is removed there will be a control in rising of prices?

It is the result of corruption that rich becomes richer and the poor becomes poorer. If people do not indulge in corrupt practices like hoarding, profiteering and black marketing, it will certainly help in the growth of economy as prices won't rise often. The government needs to take measures to control corruption and thus price hike. Lets take an example of recent hike in rail fare. The Modi government (Know 100 days agenda of Modi Government) claims that the decision is taken to give the Indian Railways an additional income of Rs 8000 crore annually as it is faced with the major financial problem. Market expert Akash Jindal says, “the hike in passenger and freight fares may not be good in the short term, but it is definitely a positive move for the medium and long term”. On the other hand, Arvind Kejriwal says that instead of increasing the rail fare, the government should take steps to curb corruption.

Price Hike Arrows

Price rise and Inflation

What is inflation? It is the rate of increase in prices over a given period of time. The cost of living of a person depends on the prices of the goods and services he uses. What causes inflation? The inadequate distribution of supply and demand is one of the causes of inflation. Supply shocks such as natural disasters that reduces production, or situation of high oil or petrol prices that reduces supply leads to inflation.

Petrol is a critical part of our day-to-day life and it is impossible to imagine life without it. The increase in petrol prices have a great effect in our lives. In the past three years petrol prices have increased 10 times and is still increasing. Hike in petrol prices directly or indirectly affects all other sectors of the economy. It affects the prices of the basic necessities as they are transported via vehicles that run on petrol. So the increase in petrol price leads to increase in the prices of these items. The common man now bears the burden of not only price hike in petrol but other commodities as well.

Price hike is a grave issue that needs to be handled thoughtfully. The development of nation is limited by inflation. New and innovative policies need to be enforced to tackle this problem. As We have new government after the Result of elections in India.


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