Inflation–a Paradox

It is somewhat paradoxical    that at a time when the slowdown in the rate of growth of the economy, which started before the outbreak of the Covid 19 pandemic, and was attributed to the decline in consumption demand, has assumed an alarming proportion, a serious price-inflation is stalking the country. When the economy is shrinking and there are substantial reductions in per capita income, with consequent fall in aggregate effective demand, this inflation is paradoxical, because a general inflation takes place only when demand is greater than supply . The inflation is most acute in case of agricultural commodities, mostly vegetables e.g. potato, onion, brinjal etc. If one cares to have a look into a rural periodic market, or an urban market, the picture will become clear. It is not a well-founded argument that the price rise is due to shortfalls in supply. When the income generated from manufacturing, mining and the service sectors have registered sharp declines, the primary sector ,i.e. agriculture and allied activities, have shown positive growth and hence the explanation of supply deficiency flies in the face of facts .It may be argued that with the return of millions of migrant workers to their native villages, there has been a decline in marketed surplus because these workers consume a substantial part of the vegetables produced locally before they come to the market. But this is also a specious argument because in the event of return of migrant workers from their places of work, urban demand for foodgrains should also decline, and act as a counteracting factor against price rise. In urban markets, however, the signs of a frightful price rise are very much there.

So, the only argument one can fall back upon for explaining this inflation is to take note of the phenomenon of hoarding, the tendency of creating artificial scarcity, an old tendency of affluent traders. Potato and onion are two essential commodities in which there is substantial scope of hoarding-- they are not easily perishable goods--and creation of artificial scarcity. In the event of such a scarcity , there is no way of providing incentives for raising production and productivity of potato and onion, because hoarders do not produce crops, they only procure and store them and sell them to wholesale and retail traders.

What is distressing is the awful silence of political parties on this issue. Given the plight of the marginalised sections of the working class population, this is really an issue of national importance, and common sense suggests that all political parties should be vocal about it. Yet there is no discernible sign of it. Press reports cannot create movements, but political parties can, if they have the necessary desire. Hence their silence is really intriguing. Are the unscrupulous traders who are bent on extracting super profits out of the miseries of the people paying a part of their profits to the coffers of the major political parties?

Punishing these hoarders is one step towards a solution. But it is not enough. Procurement of non-cereal food items from producers and selling them to direct consumers at reasonable prices is an urgent necessity. But when will there be a popular awakening and outburst of simmering grievances? Unless these happen, no government at the centre or in the states is likely to rise and undertake this operation.

Frontier
Vol. 53, No. 13, sep 27 - Oct 3, 2020