Inflation is a big deal in politics. Therefore, many believe that inflation was the primary reason UPA lost the 2014 elections. This case is not only with the UPA government in 2014. Most times, inflation has crossed 10% in India, and the incumbent government has lost power. Forget about losing control; experience from other countries has shown how hyperinflation leads to revolts and revolutions and revenge.
Inflation can do things in a country’s politics that even influential opposition leaders can’t. The current government is aware of the political impacts that inflation can have on their government. Since 2014, inflation has never been this high. And this is having a significant impact on the lives of the people. It is difficult for people of the lower middle class and poor category to meet their daily needs.
There might be many people around you whose lives have changed due to inflation, and in this article, we will discuss why that is happening in India.
What is the inflation rate?
Let’s understand it in layman’s terms. Consider one year ago, and you bought 1 kg potato for 10 rupees. Now, this year, 1 kg potato costs you Rs. 15. The 5 Rupees rise is the inflation, which means the inflation rate for potatoes is 50%.
It is a straightforward explanation; for calculating the actual inflation rate, we have to consider the prices of various things. One category is food and beverages. Another category is oil and petrol. The third category is electronic devices and appliances. Many more similar categories are formed, and their prices are evaluated.
There are two types of inflation:
1. CPI- Consumer Price Index.
2. WPI- Wholesale Price Index.
After evaluating the prices of different categories of products, a base year is set. In India, we currently consider 2011-2012 as the base year. So, when someone says that the Consumer Price Index is 7.8%, it would mean that for buying food, oils, and medicines, we have to pay 7.8% more than in 2012.
High inflation can erode consumers’ confidence, and it could also precipitate a stock market crash.
Inflation has a very negative impact on our economy. When there is inflation, people stop purchasing non-essential items, like vehicles or movie tickets. It is because even though prices rise instantly, salaries do not rise so quickly. Once we sign the contract, our wages remain fixed. So, while the prices keep rising, our salaries remain stagnant.
Why did inflation rose in India?
Reason number 1-
The supply crisis:
Due to the covid-19 pandemic, the supply chains worldwide are in tatters. Today, many goods are manufactured, packaged, consumed, and sold in different countries.
For example iPhone, It is designed in California. America buys most of the electronic parts for the iPhone from Taiwan, assembled in China and shipped to different parts of the world. Due to covid-19 restrictions, cargo ships found it difficult to transport goods from one part of the world to another. So, while demand was there, there was no supply. You might have heard that the supply of electronics chips has dried up, due to which prices of electronic goods have shot up. It is why laptop prices are hiking up.
Reason number 2-
RBI’s Interest rates:
During the lockdown, the demand and supply both decreased. So like inflation is terrible for the economy of India, negative inflation also has harmful effects. For example, you have to buy a TV, and you know India is going into negative inflation. It means that next month, the prices will fall further. So, you would wait for the next month for the costs to fall and buy the TV. So, when there is negative inflation, people do not spend money which hampers economic growth. It was a problem in India in March 2020.
RBI controls the monetary policy of any country. They use a straightforward method for this.
When economic growth slows, and RBI wants people to spend more money, it lowers the interest rate. When it thinks that people are spending a lot of money and the economy is overgrowing, that might lead to an accident. It would increase the interest rate.
In conclusion, lower the interest rates if the economy is not growing. If the economy is high, increase the interest rate. RBI did the same thing in March 2020. RBI slashed interest rates to encourage people to spend even during covid. But, the problems arose when the lockdown was lifted, and people came out of their houses and started spending. During this time, RBI did not raise the interest rates. Instead, they kept them low, due to which inflation rose a little further.
Inflation effect on government
The government has fallen whenever the inflation rate has gone beyond 10 in India. The government has failed. But we have not hit that mark as of now. Also, some experts believe that in today’s times, inflation may not be such a big issue in Indian politics. But, this does not mean that this will have absolutely no political impact.
While various welfare schemes have helped the poorest survive, some middle-class people might believe they are not getting support from the government.