Gedanken

My thoughts. Sometimes organised, sometimes chaotic.

1. #  Vivek Sonny Abraham Sat Feb 17, 04:08:00 AM
   I don't think what you are saying is very true, about the easiness of rolling back prices. Because taxes traditionally have been raised or increased during the budget only (except for introducing an entire regime of taxes, i.e. the VAT, that was a totally different ballgame). Besides introducing a tax on petro means introducing a finance bill in the LS - God only knows if and when it is introduced, when it will be passed.
   
   I think that has nothing to do with inflation. All that has to do with inflation is how much the seller has to pay. The thing in the article is that since diesel is mostly used by the manufacturing industry and transport, cuts in the diesel prices will help. But petrol is a consumer product, so cutting prices on that will only increase demand for other goods since you more disposable income. (That also is not true according to a theory in macroeconomics, which says that people know that when they have temporary increases in income they will not spend that money, instead will choose to save it. Its called the permanent income theory.)
   
   In practice probably, the veggie sellers will still demand more, and have a greater margin, but the theory goes, since this is a free market, there will be one veggie seller which will undercut the people who are overcharging (in this case, it could be Mother Dairy. All the customers could simply stop going to the roadside laariwaalas) which would eventually force them to bring down prices.
   
   But the inflation figure is hardly concerned with all this actually, since the prices that are recorded, are taken from the Mandis and Future Markets so what the veggie sellers charge you doesn't really reflect here. So there.
   
   I haven't still finished my Macroeconomics course, so I could be grossly wrong. 1000 apologies if that is so.. ;)
2. #  Samridh Sun Feb 18, 11:40:00 PM
   lol .. the comment is longer than the blog itself!!
3. #  anshul Sun Mar 04, 11:46:00 PM
   vix i dnt really get ur point clearly..but still here are my 2 cents..
   a cut in prices of essential consumer products during inflation only serves to aggravate the problem..the objective here is to suck out excess liquidity from the system as opposed to infusing extra money in the economy..which explains why RBI hikes the short term lending rates and CRR..a price cut in petrol is largely a politically motivated decison and is not backed by much economic sense though.Since its a scarce resource and prices cannot be controlled by increasing the supplly in the short run..better infrastructure like transportation and logistics and efficient consumption are the only solutions for fighting inflation..!

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