February 10, 2011

Inflation: An Evil?

We have always made inflation appear as an evil to society. All the pro-poor governments in India try to keep it under control and tame it. Te recent market movements got me thinking if Inflation was really that bad a thing in Indian context.

We are a country where at least 60 per cent of the populace still depend on agriculture for their living. And for time immemorial, food prices in India have stayed at ridiculously low levels. You can get virtually everything for less than a dollar. The road side Vada Pav sells for approximately 10 cents, whereas a similar thing in any developed nation would not cost less than 100 cents. One can get a whole day maid for less than 200 dollar a month, and I'm speaking only about Mumbai.

So, whereas the salaries for elite class and white collared workers are approaching the levels seen in developed world, the lower classes barely keep up with Inflation. So, rich are having a party with higher and higher income, and lower or stable expenses. Inflation is one of the way in which this anomaly can be removed. Let the prices of all food items double, an automatically we would have house maids and drivers asking for a raise.

In the short run there would be pain, but in the long run we as a nation may be better off with high inflation.

3 comments:

Raam Pyari said...

hmmm..your post makes sense!

Calvin said...

@Raam Pyari: Thanks :)

AshR said...

Interesting viewpoint.
But won't a constant increase in inflation discourage saving and investment? This will consequently affect the income of the elite class, thereby undermining their ability to pay extra for maids and drivers.
I don't know how logical my reasoning is, but the way I see it, a vicious cycle is likely to develop.