A a threshold limit the price rise begins
A certain amount of price rise is inevitable in a developing economy because as income level rises due to newly created opportunities the demand increases. And since a large proportion of the people do not have basic necessities, so the money is spent rather than saved. This creates a direct pressure on the market to supply more goods. But above a threshold limit the price rise begins to have a negative impact on the economy.
Another reason for inflation is continued negligence of agricultural sector. The Indian economy has emphasized Industrial sector for too long but agricultural sector has been ignored ever since independence. Due to this, the supply of raw materials has not kept pace with the consumption.
The heavy taxation on industries has also added to the increase in inflation as the increased production cost reflects in the final price of the finished products.
The increase in prices reflects directly in the lives of people. The increased price renders the poor unable to buy the goods of basic use .Indian economic model supports both capitalism and socialism. The increasing prices have a lasting impact on the lives of poor whereas the rich are usually unaffected by inflation. Especially those who have fixed incomes, for example, government employees are hit the hardest by inflation. The government provision of dearness allowances becomes insufficient for the new prices. The exports are also adversely affected resulting in imbalance in the foreign trade.
The rise in prices of goods results in wage-price spiral. Due to increased price, the labor demands higher wage which in turn adds to the cost of goods and thus forming a loop. This can create uncontrolled rise in price. The business planning is also affected by the increased prices due to uncertainty in the costs and prices
The foremost solution to stop price rise is increasing the supply. But sometimes increasing supply is not possible due to factors that can’t be controlled. For example unavailability of raw materials for production due to natural causes like floods. The other solution is to stop money from entering the market. This can be achieved by making people spend money in bonds by increasing the interest rates. Banks may increase the interest rates for loans to restrict the flow of money into the system. The corrupt practices like hoarding must be stopped to maintain a continuous flow of products. The taxation on the industries and imports must be controlled and kept reasonable to keep the final price under radar.
Price rise is a serious problem that has to be tackled thoughtfully. The development of nation is restricted by inflation. New and innovative policies need to be implemented to counter this problem.