ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Price Crunch

The Price Crunch

THE government, which had been palling itself on the back on the performance of the economy, has at last been forced to admit that things are coming unstuck on the price front. The signs are clear even from the official index of wholesale prices. Between the end of March and the beginning of September, that is, in the first five months of the current financial year, the price rise as measured by the wholesale price index was 6 per cent compared to 3.6 per cent in the same period of last year. It is hardly necessary to add that the figure of the rise in the overall price index gives little idea of the actual impact of the increase in prices. In fact the most ominous aspect of the price situation, in not just the last five months but over a longer period of, say, the last year and a half, has been the very sharp increases in the prices of a number of essential items of consumption which cannot but have significantly reduced the real incomes and consumption standards of the large majority of the people. Among these are foodgrains, especially pulses, and a wide range of other primary food articles as well as manufactured food products such as sugar and gur, edible oils and even common salt. The most piquant aspect of the sharp rise in prices of these everyday consumption articles is that it has come in the course of and just after a year in which the government has claimed a growth of as much as 10 per cent in real GDP and 23 per cent in agricultural production. The govern- ment likes to put forth estimates of the proportion of the population supposedly raised above the poverty line from one year to another; no corresponding calculations are, however, likely to be made of the number of those pushed below the poverty line as a result of the government's failure to prevent the steep increases that have taken place in recent months in the prices of basic necessities of life. Given the proximity of the elections and the manner in which the price of, for example, sugar has shot up in a matter of a few weeks, the suspicion is widespread that political fund-raising for the elections has had not a little to do with the recent behaviour of prices. Well-founded as such suspicion undoubtedly is, it must be said that the roots of the price rise have to be traced to the government's economic policies, By implication, the current spell of rising prices is likely to outlive the exigencies of the elections. The most material factor in this connection is, of course, the massive amounts of liquidity pumped into the economy year after year. What is relevant here is not only the large increases in aggregate money supply fuelled by the government's huge fiscal deficits, but, even more importantly, the virtually unlimited access to funds which organised industry and trade have gained in recent times. The Reserve Bank's annual report discloses how incremental bank credit to the commercial sector galloped from (by comparison, much-maligned net bank credit to

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