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Inflation and cost of living

In a nation as populous as India, with a population of 1.4 Billion, Raising inflation is a challenge that impacts 90% of the population negatively, making the other percentage affluent and ultra-rich. The post-liberalization era in India brought about transformative changes in the functioning of our nation, leading to exponential growth in entrepreneurship and employment generation.

The new millennium, characterized by rapidly evolving lifestyle preferences, has given rise to fresh opportunities while simultaneously eradicating numerous others. During the pre-liberalization era, although opportunities were limited, there existed a sense of stability in cultural and lifestyle preferences. However, a significant divide in mindset exists between those who experienced life before liberalization and those who were born into a post-liberalization era.

The stability of a lifestyle, along with the rapid lifestyle changes, presents both challenges and opportunities. India is also embarking on a trajectory towards a consumer culture reminiscent of developed nations like the USA. This philosophy of "earn and spend" is based on the belief that increased spending generates economic activity, subsequently creating new opportunities. The anticipated trickle-down effect aims to address the needs of the less privileged as well. There is a paradigm shift that happened due to the liberalization policies in India of which the Stability conscious people are myopic; they rely heavily on the government for all their needs and hold the belief that it should be the sole provider for everything. Consequently, they continue to reside within their comfort zone, assuming that the government bears the responsibility for their well-being. Liberalization brought about a transfer of responsibility from the government to the individuals themselves. The government's role shifted to a different arena, focusing on promoting entrepreneurs and fostering higher economic activity, which ultimately led to the overall development of the nation. India swiftly embraced this philosophy, experiencing an unprecedented level of entrepreneurial growth and economic activity, consequently triggering inflation.

The burgeoning population also contributes to increased economic activity, with the production and consumption of goods and services expanding accordingly. In recent times, managing inflation has emerged as a significant priority for the Reserve Bank of India (RBI). The measures taken by the RBI[i] to control inflation have started to impact the stock market as well, as it is widely regarded as a barometer of the overall economy. The existence of black money and a parallel economy has acted as a catalyst for exacerbating inflation, thereby posing challenges for the RBI in its inflation management initiatives. India has witnessed several legal changes and strategic measures, such as demonetization, to eradicate the black economy and parallel economy, which have had significant impacts on the nation's economy. In the midst of these realities, a certain portion of the population is capable of effectively managing their family income and expenditures, thereby maintaining stability in the face of inflation. In organized employment sectors, both in the government and non-government domains, there is a practice of tracking inflation and adjusting salaries accordingly. This ensures that employees in these sectors experience stability in their income, which in turn provides them with peace of mind in their lives. The periodic increase in disposable income within this category further acts as a catalyst for pushing inflation in an economy, particularly in areas such as educational and medical expenses. Consequently, this negatively impacts the unorganized sector, contributing to a growing divide between the "haves" and the "have-nots" in India. If left unchecked, this divide can create social disturbances and potentially lead to calamitous situations within society. Among the "have-nots," a significant portion has yet to fully comprehend the shift in responsibility brought about by liberalization and economic reforms. In the new era, there is an expectation that individuals should possess something to offer or sell if they wish to secure their survival and livelihood. Once the responsibility for survival solely rests on individuals, it becomes tragic that the aforementioned myopic population is also detached from educational systems and campaigns that provide insights into how inflation occurs and its impact on one's economic life (daily budget, monthly budget, yearly budget). Educating the general population about inflation and its compounding effect on the cost of living becomes paramount. While life itself has changed, many are still unaware of these transformations and their implications.

As India is a promising economy growing as an economic giant among other nations the growth momentum will result in a volatile inflationary environment, it is predicted that when an economy is marching towards growth, inflation will have a bullish trend irrespective of the economic and political pressure to curtail it. There can be occasional intervening activities through RBI, but inflation will remain a reality that should be mindfully addressed by every individual and family to survive as well as thrive. When it comes to the realm of family financial planning, this issue assumes a foremost strategic significance. Family financial planning encompasses the deliberate and systematic approach taken by individuals or households to effectively manage their financial resources. It involves setting comprehensive financial goals, creating and adhering to budgets, making prudent decisions regarding saving and investing, effectively managing debt, and planning for major expenses such as education, housing, marriage corpus for children, healthcare, and retirement. The primary objective of family financial planning is to ensure the financial security and well-being of the entire family, optimizing income, minimizing expenses, building wealth, and establishing enduring financial stability for both the present and future generations.

The table given below presents a comprehensive template encompassing various potential expenses that an ordinary Indian family may incur. This template serves as a guideline for determining the total annual expenses, which can then be utilized to create monthly and daily budgets. By utilizing this information, the family can effectively plan and allocate their financial resources, identifying any potential deficiencies in cash flow. This enables them to take necessary steps and make appropriate adjustments to ensure their financial obligations are met and to maintain a balanced financial position. Historical data reveals that consumer price inflation in India fluctuates within a spectrum spanning from 5 to 13%. However, when a nation encounters political turmoil, as witnessed recently in Sri Lanka and Pakistan, the inflation rate can surge alarmingly, inflicting substantial economic strain. The imposition of fiscal constraints surpasses our sphere of influence, rendering it imperative to explore alternative avenues for generating supplemental income and bolstering revenue streams to effectively overcome the deficit in financial resources.

Macro dimension on the cost of living and inflation

From Annexure 1 above, all of us got enlightened on the ideal daily income required for an average Indian family; if we analyze this figure with a real potentiality for a population of 1.4 billion, all of us should recognize the red flags of our economic and political system. Both these systems are two sides of the same coin and should work in tandem for an inclusive and equitable distribution of income and wealth. In India, the free market is marching towards economic development at a very fast pace neglecting many other dimensions which are essential for inclusivity and a welfare state. In an environment where global technological development triggers the phase of economic development, brilliant and compassionate political leadership with an effectively functioning democratic system is essential to protect the interest of the economic minority. Even in the lower Strata of the economy, people who are connected to any of the mainstream systems of the economy directly or even indirectly will benefit from the trickle-down impact of economic reforms in capitalism, but millions are unfortunate in such a way that they cannot even indirectly be connected to the mainstream economic system. Getting inflation-adjusted to the income of this population never happens, and they gradually fall into extreme poverty or slavery, such a picture we witnessed during the initial days of the sudden lockdown due to the pandemic in 2020. What we saw in those days were harsh realities of India which a civilized society cannot tolerate.

Recent years of a campaign promoting mutual funds, namely “mutual fund sahi hai” which is massively trying to educate the population on inflation and mutual fund as a means to beat inflation. The milestone needs of a family and the cost of these milestones, because of the inflation factor, are given high emphasis to attract more AUM (Asset under management) to the mutual fund industry. All these milestone needs are generally equally applicable to All families in India. Inflation in all these milestone needs is allowed to shoot up because of the undesirable nexuses with the business people and the political leadership; consequently, the divide between haves and have-nots is increasing day by day. Political systems should wake up from their pretended sleep and should take needed steps to manage unreasonable inflationary pressure, at least in the milestone category.

Mercy Davis

Note [i] The Government of India formerly authorized RBI to take financial measures to manage inflation in India through changing repo and reverse repo rates, CRR & SLR as well as open market operation.


The views expressed in the article i s personal in nature and not of the firm. The same should not be construed as legal advice or opinion.,


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