The fall of Indian Rupee against US $ is phenomenal .
It has resulted in spiraling prices, causing hardship to people across all the sections of the society.
The ornamental tinkering by the RBI, like cancelling 0% rate is no solution.
Lets us look at this issue in simple English.
Economy is determined by Demand and Supply.
Higher the demand, less supplies, the prices of products go up.
That means more money in circulation and less produce.
In this case the producers stand to gain for the specific produce they produce but have to shell out more money for the other products,
So what they earn on one hand goes out by the other.
So , all in all, every one pays more than what they can and what the produce is worth(here one should know the products ‘worth’ is only ‘notional’)
To restrict this Governments discourage by increasing Savings incentives and by making the produce dearer by tax .
This is scene number 1.
Next scene is when then there is more produce , less money
Here the producers get less for their produce.
Others look to gain but it is an illusion for the society can not meet the total demand and this drives the prices higher.
So we come to the first scene.
The Cycle is complete.
To put it jargon, inflation and deflation occur.
For inflation, you restrict money supply and this after some time causes Deflation.
This forms a vicious cycle.
If we look at a Home and understand how we budget this will become easy.
We have a fixed income.
We have expenses,
We allocate money for each item and if we find this more, we , if we are intelligent, cut down our expenses by not buying more.
The non prudent will borrow forgetting that they have to pay up the next month thus increasing the next month deficit.
Most people, especially of this generation, budget more than they earn and borrow.
This causes strain on the Home budget.
So they work more, without trying to cut down expenses.
This will go on till it breaks one day.
This exactly what has happened to Indian Economy.
The basic difference is that in our Homes we do not link our Income to the neighbor’s Income when we plan our expenses.
In modern economy, which , in my opinion , is complete non sense , skullduggery, book fudging and downright criminal to aid the rich and the corporate, spending beyond means is taken as indicator of Growth.
Taking the Keynesian Model as its Gospel, Indian economy is following the doomed path traveled by Brazil, Argentina, Greece and Ireland.
How?
To be continued.
Related Articles
- Rupee’s free fall: How it will impact you (dnaindia.com)
- Indian rupee falls to new record low (bbc.co.uk)
- Falling Rupee Vs US $ (ramanan50.wordpress.com)
- http://ramanisblog.in/2013/09/26/where-is-the-fort-knox-gold-fake-gold-bars/