Social Scientist. v 3, no. 30-31 (Jan-Feb 1975) p. 22.


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PRABHAT PATNAIK

Current Inflation in India

ANY serious explanation of the current inflation must focus attention essentially on the inflation in agricultural prices, not simply because agricultural prices have been rising much faster than industrial prices or because agriculture has such a large weight in the economy, but primarily because it is more than likely that a large part of the rise in industrial prices is itself a reflection of the steep increase in agricultural prices. An inflation in agricultural prices tends to push industrial prices upwards for several reasons. It increases industrial costs both through the rise in the prices of industrial raw materials originating in agriculture and through the rise in money wages which, even if it does not keep pace with the rise in foodgrain prices (so that real wages decline) does occur during such periods. Furthermore, with rising money wages public expenditure in money terms has to increase so as to meet a given real expenditure target;

to finance this increased money expenditure the government resorts among other things to higher indirect taxes, notably excise duties, which also raise industrial costs. If industry generally follows a prime-cost-plus policy, these increased costs are passed on in the form of higher industrial prices. Besides, higher agricultural, especially foodgrain prices usually imply a cutback in the demand for industrial goods, both because of a switch of expenditure from industrial mass consumption goods to food, and also



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