Curbing Inflation can fuel genuine growth in economy news
26 February 2013

Finance minister P Chidambaram should take a leaf from the average housewife's book and see that curbing inflation is more important for India's economy than pursuing industrial growth, suggests Tulsi Tawari, author of Creation of Wealth Vs Transfer of Wealth

Tulsi TawariThere is a misconception in the minds of many that India needs to choose one between the two - controlling inflation or driving growth. This is not quite right, as Indian inflation (especially where it hurts most people, ie food and other survival necessities) is fuelled by speculation.

Policies that can curb price rise in essentials like food, housing, and medicines at the consumer end can control inflation, even while favouring growth in demand for all other goods.

This is because once survival is secured with relative ease, consumers have two positive things to contribute: (a) surplus purchasing power to pay for other-than survival goods; and (b) when food is secured, consumer spending on other goods creates profit-margins for producers of other goods. These greater profit margins lead to growth in the economy, thanks to the greater ratios of surplus wealth compared to the money we need to spend on survival goods.

Two distinct orbits exist in any economy, which require to be dealt with by two distinct sets of policies - survival wealth and surplus wealth. Any housewife will tell you this logic of how she manages her budget. She reserves one part of her family income to buy survival needs, while the rest is available for buying other things. Once her survival needs are secured, she would spend money for other goods. When she feels threatened about price-rise for survival goods, she would reserve her decisions on spending her surplus until she feels secure again.

Growth of income has no meaning if the ratio of surplus to survival declines. On the other hand, reduction in prices of survival goods makes a family more prosperous, as their ratio of surplus to survival has increased, even if income remains the same. When a family feels prosperous they have greater interest in spending for other goods, naturally.

Misconceptions about inflation and growth exists because we generally tend to treat these two areas as one, and compute growth and inflation on all goods together. Once again, if you ask the housewife, she would tell you that price rise (inflation) is of much greater concern to her in the matter of survival goods.

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Curbing Inflation can fuel genuine growth in economy