All of us must have heard the word ‘inflation’. Some might say it is bad for the economy, some say that it is a necessary evil. To understand it, we must know that it is a general increase in the price of goods and services over time.
Intuitively, it is the decrease in the purchasing power of money. Meaning, what a ₹100 note can buy will decrease in the future. This hurts the lower strata of the population (‘aam aadmi’) the most.
The implication of Inflation.
Inflation leads to uncertainty in the market. This prevents businesses from making major investment decisions. As investments reduce, unemployment rises because of lower productivity. Due to growing unemployment, incomes come down reducing savings. This whole thing leads to lesser financial stability. (Chen , 2019)
Now, suppose the inflation rate increases very quickly. For example, the cost of food you consume increases from ₹500 to ₹700 in a week. Then next week it becomes ₹1000 and ₹1500 the week after. Typically, incomes do not increase at such a pace.
In such a scenario, if your income does not match the pace of inflation, you will not be able to afford basic necessities.
A Quick Inflation reality check
As per the World Bank Database, inflation in India is 4.9% which is higher than 2.1% in China. India has always faced a higher rate of inflation as compared to the World. (The World Bank , 2020) This is apparent in the graph 1 below.
Graph 1 : Inflation Comparision
Series: Inflation, consumer prices (annual %) Source: World Development Indicators, The World Bank Database (The World Bank , 2020)
Now, there is no fixed optimal rate of inflation that an economy should desire for. Any high, negative, or uncertain value of inflation will take its toll. (Chen , 2019) India has faced such high values of inflation in the past. (See graph 1.)
Further, governments try to manage the level of inflation to the best of their ability through policies. Unfortunately, due to other market forces, the government’s desired results vary from actual results.
Thalinomics – A way to understand the harm
In the most recent Economic Survey 2019-20, the Ministry of Finance has adopted an interesting way to educate people about inflation through ‘Thalinomics’. (Ministry of Finance, 2020)
In ‘Thalinomics’, to standardize a thali across India, two types of food plates are considered – Veg and Non-veg plates. These plates are constructed based on guidelines from the National Institute of Nutrition.
In the survey, it is assumed that a person eats 2 thalis a day and a family has 5 adults. So, a family eats 10 thalis a day.
The following graph 2. explains the rise in the price of Veg and Non-veg thali across India:
Graph 2: Thali prices All-India level
Source: Survey calculations, The Economic Survey 2019-20. (Ministry of Finance, 2020)
Note: The blue dashed line represents the linear trend till 2015-16 and thereafter projection. The red dotted vertical line represents 2015-16.
*: April-October, 2019
In a hypothetical scenario, where no government policies are undertaken, a counterfactual estimate (that did not happen)is shown to capture the effect of uncontrolled inflation on thali prices.
In the graph above, the red-dotted vertical line represents the implementation of government schemes (see Table 1. below) that were introduced in the year 2015-16.
The price of a ‘Thali’ had been steadily increasing over time until 2015-16. Afterward, a drop in thali prices can be seen in graph 2 above.
It is clear that the effect of government schemes has been significant. Otherwise, the counterfactual estimate would have been realized.
7 Govt. Schemes
The table 1 below briefly describes government schemes to curb thali price inflation:
Table 1: Govt. Schemes
|S. No.||Name of Scheme||Description|
|1||Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM- AASHA) 3 sub-schemes under this||PM-AASHA, launched in 2018,
Price Support Scheme (PSS),
Price Deficiency Payment Scheme (PDPS) and
Private Procurement & Stockist Scheme (PPSS).
|2||Pradhan Mantri Krishi
Sinchayee Yojana (PMKSY) – Per Drop More Crop
|Increasing water efficiency|
|3||Pradhan Mantri Fasal Bima Yojana (PMFBY)||Crop Insurance|
|4||Soil Health Card||Soil examination services|
|5||e-National Agricultural Market (e-NAM)||Online trading platform for
Security Mission (NFSM)
|It was redesigned in 2014-15 to increase the production of rice, wheat,
pulses and cereals.
|7||National Food Security Act (NFSA)||Subsidizing food grains.|
Source: The Economic Survey 2019-20. (Ministry of Finance, 2020)
To say whether a common man is better-off or worse-off, we have to compare thali prices with daily wage. This measures affordability of thalis. As mentioned above, it is assumed that a person eats 2 meals a day.
So the metric formula for AFFORDABILITY = 2*price of thali/Daily Wage
For veg. thali, a 29% increase in the affordability in 2019-20 as compared to 2006-07.(Ministry of Finance, 2020)
Similarly, for a non-veg. thali, an 18% increase in the affordability in 2019-20 as compared to 2006-07.(Ministry of Finance, 2020)
Now, it is safe to say that any individual is better off in terms of the affordability of thali in India.
‘Thalinomics’ is an attempt to look at inflation through the lens of a plate of food by the Department of Economic Affairs.
Affordability of Thalis has improved over time indicating improved welfare of the common person. ‘Zero Hunger’ has been agreed upon by nations of the world as a Sustainable Development Goal (SDG).
The Indian Government has been proactive in food security. Moreover, this shows its mandate to achieve other International SDGs like No poverty & quality education.
Chen, J. (2019, August 2019). Inflation. Retrieved from Investopedia: https://www.investopedia.com/terms/i/inflation.asp
Ministry of Finance. (2020, January ). Economic Survey 2019-20. Retrieved from India Budget – Economic Survey: https://www.indiabudget.gov.in/economicsurvey/
The World Bank. (2020). DataBank | World Development Indicators. Retrieved from The World Bank: https://databank.worldbank.org/reports.aspx?source=2&series=FP.CPI.TOTL.ZG&country=IND,CHN,WLD,NAC#