Social Economy: high vegflation does not matter much

Bhaskar Majumder

These days, post-Corona 2020, I am informed by the relatives-friends-neighbours telephonically that they are buying vegetables on their door-step at prices higher than the pre-Corona market prices and they as buyers did not feel unhappy for that though their real income declined in proportion with the money spent on the vegetables. The reason that they told was, in spite of abrupt increase in number of such sellers, the middle section as savers in the system understood that they could provide a little social support, though economically implemented. It was the local society around greater Kolkata in West Bengal. This needs re-thinking Economics. 

A few days back I got through electronic media the concern of the honourable Finance Minister on the retail prices, that the retail price index can be maintained at 4.0 per cent or so if I read it carefully.  Probably it was to satisfy the class which matters. The middle section as the politically active vibrant section is often found very vocal about the rising prices of essential commodities. The media obviously voices the idea of the middle class or middle income group; the latter feels defeated by the market. The reaction comes readily when this section thinks it can pressurize the Government to intervene to control the prices. What I opine here is the following.

Rising prices are the prices of the final commodities that the middle sections buy. They feel defeated because they think their real income is falling in proportion with the price rise. Had they got the chance to raise their income through wages, salaries, interest, and rent, they perhaps would have stopped raising hue and cry over the rising prices. Hence, what matters really is not only the increase in prices of commodities seen as 'final' to be consumed by the buyers, the middle sections in the society, but the other prices also, mainly the wage rate as a proxy of per capita money income and the interest rate that they expect to earn as depositors through the financial institutions. Hence, the relative prices matter. These may be expressed as the real wage rate and the real interest rate expected. In general, the middle sections express concern for the upward movement in the internal structure of prices.

The whole scenario changes if the buyers could convert themselves into sellers. For this, one has to have means of production to produce saleable products and there has to be market to sell. If the individual is a little bit more competent, economically speaking, she can think about saving a portion of her income and hence earn interest with the financial institution to protect her for the speculated vulnerable period.

It is to be kept in mind that price has a dual face via the transactions of the commodity, be it for final consumption, be it labour power, or be it money. I pay a price for a single commodity when the commodity compensates me in terms of my choice revealed just as the seller of the final commodity gets compensated via earning money income and hence expecting to get some different commodities. A price higher than the previous one for the vegetables means the fortunate seller of the commodity at the bottom of the commodity basket expects to be compensated a little bit more. It gives her a little bit more income which was previously below the level of biological survival.

If the vegetable seller is fortunate to have her own cultivable land, she will be able to open an account in the local Bank, which she does not probably have. If she does not have reasonable size of land or if she does not have means to protect her land against natural/man-made calamities, she will have to buy vegetables to re-sell at a higher price following perhaps the increases in prices related to production-trade. The vegetable sellers under the circumstances will have no choice but to go for a little bit hikes in prices of the products which are perishable.

I leave the questions associated with business cycle when it is inflation. I am responding now only to the recent voice of concern of the Government of India in terms of controlling prices in retail trade, of course sympathetically. The reaction against rising prices of vegetables (essential goods) really shows the class bias in India's economy and society that is heavily weighted against the already marginalized.

What happens if the prices of vegetables rise by 10.0 per cent? A person earning Rs. 10,000/- per month spends at most 10.0 percent of her income on these commodities, that is Rs. 1,000/-. The assumption is that she has a family of five members. A price rise by 10.0 per cent will lead to this specified expenditure to Rs. 1,100/- so that she will be able to save Rs. 100/- less per month. This Rs. 100/- is going to a number of vegetable sellers who will readily spend it on a number of essential goods for biological survival, and probably can spare her child from going to toil in the crop field or from collecting wastes. Economically speaking, the rising prices-led redistribution of income in favour of the vegetable sellers will have a better multiplier effect for the uplift of the bottom sections of the society. What happens if the final price of Swift rises? The same middle section may borrow from banks and pay much more than the announced increased price by repayment of principal plus interest on borrowed sum.

I don't know if purchasing at a higher price is a higher status when it is 'Swift' and a lower status when it is vegetables. I do not defend captivating the prices of vegetables in a Corona-crisis.

Bhaskar Majumder, Professor of Economics, G. B. Pant Social Science Institute, Allahabad - 211019

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Apr 23, 2020