Notes Speculation in the Indian Economy THE FINANCE MINISTER in his budget speech on February 28,1986 announced that wholesale price indices had increased by only 3.4 percent between March 1985 and February 1986 as compared to 5.6 percent over a comparable period the previous year. Even assuming this figure to be an underestimate the rather unexpectedly low price increase comes in the wake of a whopping Rs. 4400 crore budget deficit according to revised estimates. This has encouraged the government to go in for yet another round of deficit financing to the order of Rs. 3800 crores according to budget estimates, a figure that is likely to be higher in actuality. Even if one accounts for the record consecutive bumper harvests and the apparently improved industrial performance, such low increases in wholesale prices seem at first instance to defy economic logic and past experience in the Indian context. In order to fit the jigsaw puzzle, it will be necessary to look at the role of speculation in the Indian economy. Traditionally, speculation in the Indian context has essentially implied speculation in commodities. The most apparent form of this speculation manifested itself in the past through the disappearance from shop shelves of the more expensive brands of cigarettes, a few days before the budget and their reappearence at higher prices after the budget. Similarly, petrol pumps would run 'dry' before the budget and would magically be 'restocked' after the budget. These essentially are rather simple speculative activities designed to take extra profits from the price differentials between the pre-budget and the post-budget prices. A more generalised form of speculation in the Indian economy has been in essential commodities like foodgrains, pulses, edible oils, sugar, kerosene etc. which are items of everyday mass consumption and which, therefore, face an inelastic demand. Taking the case of foodgrains, the wholesale purchases would be made in the post-harvest period when prices are at the lowest and would gradually be released in the market when the prices are higher. The recent increases in foodgrains output have acted as a depressor for speculative activity. This is because speculation becomes highly profitable in a situation of scarcity, relative to demand. Nullifying this depressor to a certain extent is the constant upward revision of procure-