Prof Bhaskar opines that India’s social economy, involving barter and community support, helps mitigate inflation, primarily affecting the urban middle class, exclusively for Different Truths.

A large section of the population in India lives in the social economy, which is understood as an economy that functions in several ways like a collective mode, a barter-based economy, simple distribution of home-grown vegetables among neighbours, and all that apart from gifts and donations of goods received, temple-gurdwara provided food that makes a meal a day for the food-hungry and all that.

Distribution of food through fair price shops in the public distribution system and midday meals that are sponsored by the state partially offset the impact of inflation on the food front. It needs to be kept in mind that it is foodflation that affects most of the population in India. Thus, the concern for inflation is a middle-class concern, the class that, in evolution, distanced itself from the above modes. Elite is outside the purview of this discussion.

Inflation is Politically Sensitive

Still, we discuss inflation because it often becomes politically sensitive and may divert public votes from one wing to another if the not-too-remote past is not forgotten. Let us leave aside for this analysis the general statement that all economic answers are political questions. We concentrate on inflation as an economic aspect on the pedestal of commodity money by equivalence or non-equivalence in transactions. Transactions made mean equivalence is perceived.

Money matters. So does inflation. If inflation does not matter for the subsistence farmers and roadside tiny businessmen, the core state will try its best to make them money-conscious up to the point of digitisation to ensure the existence and functioning of a money-based economy that facilitated big business much more than the tiny participants in the market or that facilitated the avenues of dispossession of the money-poor.

Inflation Breeds Inflation

Inflation breeds inflation because the expected price is a function of the present price, and hence rising prices of commodities at present will lead to the formation of a perception of still higher prices in processes of exchange. One consequence of the course for the middle section is to put more money into the savings account and spend less. Theoretically, it seems sound. Practically, in inflation, this section hardly gets much scope to save. Do they save more during deflation?

Based on my primary survey, I found the low-middle income households living better buying more of vegetables and fish during falling prices of these, if not more of fruits and mutton, for they understood falling prices of these gave them the chance to buy a little more, consume a little more, and energise them a little more.

Non-expanding Income and Savings

So, while in inflation it becomes market-forced to spend more, in deflation it becomes their choice to spend more. This spending is subject to their budget constraint or disposable money per month. If the disposable money does not rise, the flexibility in expenditure in the triangular space below the budget line, which shows income-expenditure equality, will not have much meaning to allow the Keynesian multiplier to work, that is, to lead to expanding income. Non-expanding income means non-expanding savings from the household sector constituted by a large section of consumers that include not only the low-income middle section but also the consumers in the real sector of the economy.

Demonetisation and Tiny Shopkeepers

Before I come to the core point, let me point out that even in demonetisation some years ago, my primary survey-based data in the Jhusi area of the city of Allahabad (Prayagraj) in Uttar Pradesh showed that the roadside tiny shopkeepers and sellers of small items like intoxicants and perishable cooked food items were not bothered about demonetisation for their daily income was less than Rs. 500 per day, and hence they did not need to stand in the queue in front of the bank to surrender Rs. 500 notes. In the absence of intensive monetisation for them, demonetisation did not have any impact on them.

At present, my unstructured survey of a few domestic women-paid workers revealed in suburban areas of Kolkata in West Bengal mostly similar data, though they are supported by labour-free injection of government money like Lakshmir Bhander that helped them remain inflation-proof (like waterproof).

The core point is inflation-deflation is a monetary game for the urban middle vocal section of the population that is salaried and is in fear of burning a hole in the pocket. The money elite may advocate for inflation because it shows an upswing in the trade cycle and pro-growth. Higher growth means higher possession—’growth’ camouflaged by ‘trickle down’. Monetary authority is there to guide the provision and release of loans to heavyweight business houses for investment that often becomes non-performing assets (NPAs).

Intergenerational Low Income

There are some corollaries of the phenomenon of intergenerational low income of the major segment of the population in India. One is a required inequality that keeps state-sponsored inequality to promote savings extracted through taxation from the high-income bracket of the population. This is, however, not to mean that investment is internal savings determined. There are ways and means to promote investment, like borrowing from abroad, from the World Bank, the International Monetary Fund (IMF), and all that. This includes both foreign direct investment and foreign institutional investment.

Since we concentrated on saving possibilities in a situation of inflation, we abstain from related implications, though they may be very relevant.

Picture design by Anumita Roy

Prof. Bhaskar Majumder

Prof. Bhaskar Majumder, an eminent economist, is the Professor of Economics at GB Pant Social Science Institute, Allahabad. He was the Professor and Head of the Centre for Development Studies, Central University of Bihar, Patna. He has published nine books, 69 research papers, 32 chapters,15 review articles and was invited to lectures at premier institutes and universities over 50 times. He has 85 papers published in various seminars and conferences.
He also worked in research projects for Planning Commission (India), World Bank, ICSSR (GoI), NTPC, etc. A meritorious student, Bhaskar was the Visiting Scholar in MSH, Paris under Indo-French Cultural Exchange Programme. He loves speed, football and radical ideology.