India in an Exceptional Economic Situation- Prices are Skyrocketing With Continuously Falling Income and Demand of Buyers

India in an Exceptional Economic Situation- Prices are Skyrocketing With Continuously Falling Income and Demand of Buyers

By P.B.Sharma

     In these days Indian Economy is going through a really Exceptional Situation, as the  price level of normally consumed  basic goods are going, Skyrocketingly high. While on the other side Income and Demand levels of Byers or Households are continuously Decreasing.

      In Economics  we study that Prices of goods can Increase only in two Cases:-

A) If Demand and / or Income of Byers increases,  

B) If Supply or production of the relevant goods decreases.

Present Situation

But at present none of the above situations are present  in the Indian Economy. 

* Employees are loosing their jobs. It is happening  due to a Mixture of reasons - Decreasing level of Aggregate Demand, Corona related Lockdown etc.

* More than 90% of the Earning persons of the country have lost a big proportion of their income, while some proportion of the people have completely lost their income.

* Producers are unable to sell their Output and  are worried with their Increased level of Undesired Stock of Goods.

* Farmers are forced to destroy their unsold output, as they are not able to recover even their  total cost.

All these facts shows that the present level of increased prices or Sectoral Inflation is neither - 

a) Cost Push type of Inflation, nor

b) Demand Pulled type of Inflation.

Rather this type of increased price level or Sectoral Inflation may be called "Greed Driven" or " Policy Guided". 

This New type of inflation is playing havoc with the life of majority portion of our countrymen I.e. more than 90 percent of the Indian population. It includes, extremely poor, poor, lower middle class people and middle class people.

Important triggers of this 'Special kind of Inflation' :-

   A)  Very short practical time available for sale & purchase of goods, providing ample /  good enough opportunity to the sellers to increase the prices and thereby increase their profits.

   B)  Fear psychosis created in the mind of consumers by frequently changing policies regarding start and stoppages of transactions of different goods, through Lockdown - Guidelines.

   C)  Problems created in transportation & supply  of goods, by the Lockdown Enforcement agencies. This has created Artificial and Avoidable shortage of supply.

  D)  Continuous policy of increasing the taxes on sale of petroliyam goods and increasing the prices.

       

      Burden of taxes charged on sale of petroliyam goods can be seen through following table. Taxes charged on petro goods is more than 150% of the combined value of base price and freight charges. It can be seen through following table:-

      Price and taxes on sale of petrol  in India in May 2014 and Feb 2021 for New Delhi, here all the amounts given are in Indian currency (i.e. INR).

	May 2014	Feb 2021
Base price and freight	Rs 47.12	Rs 32.1
Central taxes	Rs 10.39	Rs 32.9
State taxes	Rs 11.9	Rs 20.61
Dealer commission	Rs 2	Rs 3.68
Retail selling price	Rs 71.41	Rs 89.29

Source: PPAC, IOCL

         Increase in price of petro. goods leads to increased freight charges / transportation cost etc. It finally causes increase in general Price Level and brings Inflation or Sectoral Inflation.