Economist – The New Indian Express

Express news service

BENGALURU: Inflation is the expected outcome after the economy collapses as companies try to make up for their losses suffered during the lockdown by raising prices, Professor RS Deshpande, Visiting Professor, Institute for Social and Economic Change ( ISEC) and former director, Dr BR Ambedkar School of Economics, explains.

“After the foreclosure many businesses suffered heavy losses and now they have to make up for it. This is exactly the market situation today. Business losses are compensated by businesses, ”he said.
There are many factors driving the price increase including input costs, rising fuel prices, but the major problem is the attempt to maneuver the market, he said. “Since my first job in 1974, I have discovered that the only beneficiaries in the whole economy are the middlemen. This is the situation even now.

However, according to him, an increase in the prices of raw materials in the international market is not a factor for the increase in the prices of essential products like cooking oil, as the markets are not fully integrated.
Professor Deshpande said there will be huge inflation and it will decrease after consumer demand contracts. “When consumers reduce their demand, for example by buying only two liters of oil instead of five, prices are likely to fall,” he said.

According to him, there is little the government can do. “We accepted the policy of opening up the market in 1991 and not controlling the prices of raw materials. We cannot control it now. Inflation has been our companion since independence. There is nothing the government can do if it does not exercise strict control through fiscal policy. But it’s difficult, ”he said.

Excluding inflation, gross capital formation in the household sector is expected to decline significantly.
“There was no income for several months and people used their savings. Now, when they start earning income, they have to meet the preconditions first, so there will be a squeeze on savings. Saving in the household sector, which was around 30 percent a year ago, will decline by around 3 to 5 percent. If savings decline, investment in the domestic sector will also decline, ”he noted.