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Inflation and Unemployment in India

Inflation and unemployment is one of the major problems is the world today. In conventional terms, inflation means loss of value of money. There has been focus on high rates of inflation around the world in the world media. The recent food and financial crises are recent incidences where high rates of inflation and unemployment were greatly focused in our media. The period between 2007 and 2009 was marked with very high inflation rates and high level of unemployment. Although most countries are getting out of the global financial crisis, India still suffers from high inflation rates. The country’s inflation rate reached 8.56 percent as per January 2010 (The Siasat Daily par 1). As a result of global financial crisis, the country has a rising unemployment rate. The high inflation and unemployment rates are great concerns for the Indians and Indian government.

Inflation is defined as increase in the general prices of goods and services over a certain period of time. As a result of the increase in prices individuals buy fewer goods or services for each unit of currency (Coleman 27). For this reason, inflation is also defined as the loss of purchasing power of currency. Inflation is generally measured by use of inflation rates, which are general change in price index (Coleman 38). Inflation has both positive and negative effects to an economy. Inflation leads to decrease in the real value of currency. This may discourage investment, slow down economy and lead to unemployment (Coleman 72). High inflation rate increases the cost of living and can lead to shortage of goods. Despite of the negative effects, recession has few positive effects such as reducing the real value of debt.

Unemployment is an economic situation where an individual lacks an economic activity for self sustenance. Economists define unemployment as a situation where a person willing to work fails to find one. Unemployment is one of challenging economic situation. High unemployment rates lead to low purchasing capacity, slow economy and also contribute to social problems.

Indian inflation rate as per 30th January 2010 was 8.56 percent. This was an increase from an inflation rate of 7.31 in December 2009 (The Siasat Daily par 2). This is the highest inflation rate for the country in the last fifteen months. The main cause of this high inflation rates the increases in food prices. India has been experiencing rising food prices for the last three months. Rice in food prices have affected the other sectors of economy leading to a high government concern (The Siasat Daily par 4). In the last week of the month of January, the food inflation was recorded as 18 percent. This is among the highest food inflations that the country has had in many months. The prices of essential commodities such as rise, sugar and potatoes have increased with over twenty five percent. Although the Indian government has taken measures to revert the situation, it is anticipated that the inflation rate will continue to rise until the food situation is resolved.

Increase in food prices is the main cause of high inflation rate in Indian. With high population to feed, decrease in food commodities in the market has led to increase in food prices. The country had poor crop yield in the previous season. This led to scarcity of essential food commodities that led to high food prices.

Although high food prices are the main cause of rises of inflation rate Indian, there are other factors that have contributed to the same. The increase in production cost in the last one year has contributed to the inflation rate. Production cost of most of commodities significantly led to increase in prices. Companies tend to pass on the cost of production to customer leading to high prices. Rise in labor cost in India has led to increase in production cost. Production cost has also increased as a result of increase in the cost of raw material and energy. A part from increase in production cost, increase in inflation rate in Indian is as a result of monsoon floods (The Siasat Daily par 11). The monsoon flood helped to raise the food prices leading to the high inflation rate. Unlike in the previous year, fuel prices do no have high contribution to the inflation rate. Increase in indirect taxes by the government has also contributed to the high inflation rates.

Unemployment is persistent problem in India (Azad India foundation par 2). Although economic growth reduced unemployment rates in Indian significantly, the unemployment rate is still high. In December 2009, the unemployment rate was recorded at 8.2 percent. There is significant difference in unemployment rate in Indians. The rate of unemployment is higher in urban area of Indian as compared to the rural areas. As compared to men, there are more women who are not employed. With increase in literacy, unemployment rate in India is higher in educated people than in uneducated. The rate is also higher in agricultural sector as compared to Industrial sector (Azad India foundation par 6). The major cause of high inflation rate in India is the high population growth. High population growth has led to competition over economic opportunities. A part from high population growth, technological advancement has increased unemployment rates.

Inflation has various consequences. This rising inflation rates in India are likely to have both economic consequences. With the high inflation rates, people are spending a lot on essential commodities. In consequence, there is decrease in savings as many people spend their earning rather than save. The high inflation rate has affected the buying habits of Indians (The Siasat Daily par 9). By spending much on food stuffs and essential commodities, there is reduced spending in other areas that are thought to luxurious. Changes in spending habits of people have effect on industries. High inflation rate India have affected Indian’s industrial sector, as demand for some commodities has dropped severely. High inflation rates have also contributed highly to rising unemployment rate. Low demand for some commodities has led to unemployment (Azad India foundation par 7). By reducing saving, the rising inflation rates in likely to affect investment in India. Since investment capital result from savings, low saving caused by the high inflation rate in likely to affect local investment. In addition, high inflation has effect of foreign trade. The high inflation rate give importers to Indian market an advantage over local companies. On the other hand Indian exporters suffer for low competitiveness in foreign market.

High inflation and unemployment rates are a challenge in the world today. There are various causes to high inflation rates including high cost of production, increase in fuel prices, increase in prices of commodities and calamities. The main cause of rising rate of inflation in India is high prices of foods. The high inflation rates have affected various sectors of Indian economy. High inflation rates and high unemployment rates are closely connected. The rise in inflation rate in India has led to rise in level of unemployment.

Works Cited

“Azad India foundation: Unemployment in India”. 2010. Web.

Coleman, William. The causes, costs and compensations of inflation: an investigation of three problems in monetary theory. New York: Edward Elgar Publishing, 2007.

“The Siasat Daily: High inflation rate disturbing”. 2010. Web.