The convalescence of the national economy following the onslaught of the pandemic, in a context of abundant financial liquidity and a highly developmental budgetary policy in the major developing countries, has favoured rising commodity prices.
In the current context, in which economic revival is symmetrical with rising inflationary pressures, a question that strikes the mind is: how are prices of final consumer goods affected by the rise in commodity costs, and what impact does this have on a developing low-middle-income country such as India?The economy was a car driving us off the ecological cliff, when it slowed- people became sicker and impoverished, when it accelerated- people stepped into a finer fettle and became richer. So regardless of the reason to slow the car, to save all the passengers, the gas pedal was pumped. nobody ever thought to park up for a while and think about a new way to run the world that was good for people and the planet.
Now that we’re slowly running out of fuel to run the economical car, people turn ailing and enter stressful conditions under the burden of a slowly rotting economy; our very own leisurely poison.
Right now, the country’s economy faces a serious threat - inflation, especially via the fuel route. In the last few days, the prices of petrol and diesel have been soaring up.
According to a report, the prices have already breached the Rs 121 per litre mark in the more interior parts of the country. However, recently with the State and Central Governments cutting their taxes on fuel, the prices have fallen marginally.
The rise in prices of petrol and diesel also feeds into the prices of other commodities via a cascading effect. A rising trend in international crude prices is only one part of the fuel inflation story as taxes are a big incentive behind the latest levels of fuel prices.
While the situation is already very strenuous, any further increase in international crude prices will only make it more precarious. When the prices of goods increase so will revenues and, subsequently, profits for private enterprises.
The influx of capital will enable businesses to expand their operations by hiring more employees. When there is inflation in the country, the purchasing power of the people decreases as the prices of commodities and services are high.
The value of currency units decreases which impacts the cost of living in the country. When the rate of inflation is high, the cost of living also increases, which leads to a deceleration in economic growth.
The pandemic, thus, as a root problem may have pushed the country's economic status to one as poor as of twenty-nine years back. One would agree with the fact that the nature of the disparities discerned in the supply of several of these commodities- be it fuel, or vegetables, or grains- is a response to fleeting, temporary conditions, so their effect would fade over time and not warrant any major transpositions in the monetary conditions of many emerging countries. However, the situation at hand is a very divergent kind.
This time around, about half of the emerging countries in the world have topped their central banking system’s inflation target by heaps, which thus acts as the means to an end of their economy, and in many cases those high rates are amplified by a deficient foreign exchange rate.
It is in these situations that new interludes of escalating product prices, particularly in agricultural commodities, could not only provoke rising consumer prices but also a rapid reinforcement of financial conditions which could curb the economic recovery.
(The writer is a Standard-X student at DAV Public School, Unit-8, Bhubaneswar)
