The Problem of Rising Prices

Summary

This Forum of Free Enterprise booklet gathers excerpts from statements issued by several Indian commercial and industrial bodies and from the presidential speeches of their chambers, all addressing the sharp rise in prices in 1962-63. As the introduction explains, it compiles relevant material from various organisations to give students of economics an insight into the causes of price rise, and adds an appendix on the much-debated cost-of-living index. The contributions share a common diagnosis from the business community: that inflation is driven principally by a supply-demand gap in foodgrains and essential commodities, by deficit financing and heavy Emergency-era defence expenditure, and by the cumulative burden of indirect taxation, excise duties and railway freight increases — rather than by trade profiteering. Across the excerpts the chambers press the government to prioritise increased production, relax movement and price controls, and reconsider its tax policy, while defending private trade against the charge of being responsible for rising prices. Named individual contributions come from G. D. Somani (Indian Merchants’ Chamber) and Lalchand Hirachand (Maharashtra Chamber of Commerce), alongside statements from the Bengal National Chamber, the Indian Chamber of Commerce (Calcutta), the Gujarat Chamber and the Association of Indian Trade and Industry.

Essays

Factors Influencing Price Movements (Memorandum to the Price Inquiry Committee)

By Bengal National Chamber of Commerce & Industry

An excerpt from the Bengal National Chamber of Commerce & Industry’s memorandum to the West Bengal Government’s Price Inquiry Committee (July 1963). It sets out the factors influencing price movements: rising purchasing power from large Plan investments, deficit financing and Emergency/defence expenditure, agricultural output failing to keep pace with demand, time lags in investment fructification, and the cumulative weight of taxation, excise and railway-freight increases. It argues profit margins of trade and industry are generally low and that controls on prices and distribution are of doubtful utility, locating the remedy in increased production rather than regulation.

• Rising purchasing power from First, Second and Third Plan investments fuels demand.
• Deficit financing and Emergency/defence expenditure swell money supply (Rs. 1,804 cr in 1951 to Rs. 3,406 cr by April 1963).
• Agriculture, ~50% of national output, fails to keep pace with demand, pushing food prices up.
• Excise revenue rose from Rs. 67.54 cr (1950-51) to Rs. 489.31 cr (1961-62), adding to costs.
• Trade and industry profit margins are low; controls on prices/distribution are of doubtful utility.

Impact of Taxes on the Price Level Needs to be Studied

By G. D. SOMANI, President, Indian Merchants’ Chamber, Bombay

An extract from G. D. Somani’s presidential speech to the Indian Merchants’ Chamber (first quarterly general meeting, June 1963). Somani argues that the impact of taxes on the price level needs proper study, contending the steep rise in indirect taxation since 1962-63 has fed directly into prices, and that physical controls should be a last resort. He stresses that the business community is willing to co-operate to hold the price line but that responsibility cannot be pinned on industrialists; the real factors are the supply-demand gap in producer and consumer goods, inadequate agricultural supply, and large government development and non-development expenditure that inflates purchasing power.

• The steep rise in indirect taxation since 1962-63 has fed straight into prices and needs objective study.
• Physical price controls should be a last resort, not the first instrument.
• Output of producer goods rose only ~14% against rising effective demand, widening the gap.
• Government development and non-development expenditure is a determining inflationary factor.
• Traders should not be held responsible for the price rise.

The Government Should Adopt a Price Policy Based on Production Considerations

By LALCHAND HIRACHAND, President, Maharashtra Chamber of Commerce, Bombay

An excerpt from Lalchand Hirachand’s presidential address to the Maharashtra Chamber of Commerce (Third Quarterly General Meeting, July 1963). Hirachand argues that the government should adopt a price policy based on production considerations rather than administrative controls, holds that price controls break down in the face of genuine shortages, and urges that responsibility rests with educating the business community and removing the real cost-push factors — chiefly inadequate production and high taxation — so that prices can be brought down through increased supply.

• A durable price policy must rest on increasing production, not administrative control.
• When commodities are genuinely short, regulation only accentuates scarcity and unhealthy spiralling.
• Essential-commodity output must be raised to arrest the inflationary trend.
• Adequate production based on sound considerations is the real route to lower prices.

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