BENGALURU: Inflation is the expected outcome after the economy collapses as enterprises try to make good their losses incurred during the lockdown by increasing prices, Professor RS Deshpande, Visiting Professor, Institute for Social & Economic Change (ISEC) and former director, Dr B R Ambedkar School of Economics, explains.
“After the lockdown, many enterprises incurred severe losses and now, they have to make up for it. This is exactly the market situation today. The business losses are being made good by enterprises,” he said.
There are many factors for the price rise, including input costs, fuel price increase, but the major problem is the attempt to manoueuvre the market, he said. “Since my first work in 1974, I found that the only beneficiaries in the entire economy are the middlemen. This is the situation even now.”
However, according to him, an increase in commodity prices in the international market is not a factor for the increase in prices of essential commodities like cooking oil, as markets are not completely integrated.
Prof Deshpande said there will be huge inflation and it will come down after consumer demand contracts. “The moment consumers squeeze their demand, like buying only two litres of oil instead of five, the prices are likely to slide down,” he said.
According to him, the government cannot do much. “We have accepted the policy of open market in 1991 and not controlling commodity prices. We cannot control it now. Inflation has been our companion right from Independence. The government cannot do anything unless it brings in stringent control by way of some taxation policy. But that is difficult,” he feels.
Apart from inflation, gross capital formation in the household sector is likely to come down significantly.
“There was no income for several months and people used their savings. Now, when they start getting income, they need to first fulfill the earlier requirements, so there will be a squeeze on savings. Savings in the household sector, which was around 30 per cent a year back, will drop by around 3-5 per cent. If savings come down, investment in the domestic sector too will come down,” he noted.