INFLATION-FOCAL POINTS AS WELL?

Inflation to a layman is just about the inadequate hike in the prices. There are no causes and effects backing them. It is a ‘dark phenomenon’ which eats away their lives and leaves them all in the lands of misery. It is a curse of god for those who have committed sins, few analyse. Leaving behind all the weak effects of inflation, there are few reasons for the country to expect inflation rate of about 2% every year. Why is that? After all the horrendous effects of the inflation, why does a country need inflation? Let me get deep into this topic and analyse the focal points of inflation as well.

Firstly let us analyse the state of affairs of a country with 0% inflation. For instance, a manufacturer produces moong dal of ten kgs, Rs 100 each. Of the 10 kg, he divides them into two equal packages, one for the domestic supply and another for the exports to USA. In order to cultivate the crop, the manufacturer imports the best fertilizers from USA. The salary of a common man in the production base is around 1000 bucks. The current value of Indian rupee and Dollar are in the ratio 50:1. The USA imports moong dal of 5 kgs every year paying just $5. And the remaining 5 kgs are purchased by the consumer with Rs. 500 and the remaining is spent as investments or for paying the taxes.

Now, the consumer purchases at the same amount for over years, if there is no inflation. If the demand increases, obviously it tends to an increase in the prices. Based on the reason why the demand is raised, we can decide if it is inflation or no. So if the consumer keeps buying the product at the same cost for years together, the business would not fetch any profits. This might make the manufacturers less interested and reluctant towards the business as their profits are the same every year. It is a tendency of the businessman to expect more and more profits and tendency of the worker for the wages to be increased in time to time. With no profits, of course the manufacturer cannot increase the wages. Thus the worker being the consumer cannot spend more. This cycle continues. This is just a different way of looking at why demand doesn’t grow. This might be a fictional situation but it might be reality taking into the assumption that the demand for the product does not grow due to other factors. And, the taxes for the government remain the same every next year, which ties them up from taking up developmental measures affecting the growth of the country. The cost of exports and imports stay stable for a long period as there is no tendency for the money to appreciate or depreciate. This makes the economy a working clock without any added benefits. The economy starts to develop stagnation and thereby, if any concept in the cycle goes against the process, that would dump the economy in chaos.

Everyone in life expects more returns for the next year which boosts them all throughout to work hard. If we already know that there would be no fall or gain in the income, then reluctance starts to grow in them. ‘Whatever we do, there is nothing that is going to happen to them. They’re safe.’ This is already observed in the government jobs, as we all know.

In order to mould the economy and the interests of the government and also the people (producers and consumers), it is a good omen to have a mild inflation.

• The wages and prices can be adjusted accordingly.
•  The export gain is widely seen.
• Boost to the economic growth.
• Increase in the tax revenue of the government.
• Increase in employment as there is increase in productivity.
•  The borrower is benefitted as the money he owe remains the same but the money in his pocket starts increasing due to higher wages, higher productivity, more employment opportunities, more government schemes of welfare etc
• It benefits the lender in the way of more interest received from the greater amount lent.

Thus, we cannot judge things without knowing the depth in them. Knowing the depth shows us the bigger picture which includes the merits as well as the demerits of a particular subject.