📈 Price Rise and Consumer Awareness

Price Rise: Meaning and Nature

Among many economic and social problems of India, one is price rise. A continuous and constant
rise in price in different fields of the economy at a high rate is called price rise, which is a problem.

Price Rise and Economic Benefit

• Price rise along with stability is beneficial for the economy.
• Generally, an increase in price results in increasing the profit of organizers and producers.
• Because of undecided profit, they get opportunities to set up new production units.
• When production cost is less than the price rise, the profit amount increases.
• The producer gets encouragement for new investment.
• As a result, production activities, production, and employment increases.
• Due to an increase in income, producers, organizers, and businessmen can increase the wages
of their employees.
• Thus, due to an increase in income, purchasing capacity increases.
• Money spent on the usage of commodities increases, resulting in a rise in the living standard
and the speed of economic development.
• So, it can be said that stable price rise is a prerequisite for economic development.
Inflationary Situation (High Price Rise)
• When there is a noticeable increase in the price level of commodities or services invariably
and continuously at high rates, then the production of instantaneous commodities and services
does not increase.
• However, the supply of money increases speedily.
• Thus, excessive amount of money is used on comparatively less commodities.
• This kind of price rise condition is called an inflationary situation.
• High disturbance in prices, expenditure, and savings creates economic instability.
Causes of Price Rise (Inflation)
The causes of price rise are classified into two main types: Demand-pull Inflation and Cost-push
Inflation.
1. Demand-Pull Inflation (Increase in Demand)
Demand increases due to the following factors:
• Increase in money supply: Due to a lower rate of interest, people borrow more, increasing
the money supply. When the government spends more, issues more currency, or prints more
money, the money supply increases.
• Increase in public expenditure: When the government spends money on infrastructure (roads,
railways, power plants), the employment and income of the people increase, leading to a rise in
demand.
• Increase in population: Rapid population growth leads to an increase in the number of
consumers, causing an increase in the demand for necessary items.
• Increase in export: When export demand is high, the supply of goods for the domestic market
decreases, leading to a shortage and price rise.
• Tax policy: The government can levy high tax rates on essential goods. A higher rate of tax
reduces the production of goods, increasing the price.
• Black money: Black money increases the total purchasing power of the people, leading to a
sudden rise in demand and prices.
2. Cost-Push Inflation (Increase in Cost)
Production cost increases due to the following factors:
• Shortage of raw material: If raw materials, electricity, or agricultural products become scarce,
their prices rise, increasing production cost and the final selling price.
• High wages: When there is an increase in the demand for labour, workers demand higher
wages. Producers transfer this cost to the consumer by increasing the price of goods.
• Increase in taxes: If the government increases VAT (Value Added Tax) or Service Tax, the total
production cost increases.

Effects of Price Rise

Price rise affects different sections of society in different ways.
Beneficial Effects (Gainers)
• Producer, organizer, and businessman: They get higher profits.
• Groups engaged in investment: They get more benefits.
 • Debt-ridden people: The real value of the loan decreases, so they have to repay less in real
terms.
Harmful Effects (Losers)
• Fixed income group: People with fixed income (employees, pensioners) lose their purchasing
power.
• Poor and middle class: Their real income reduces, and their savings and standard of living fall.
• Creditors/Lenders: The real value of the money they lent decreases.
Other Harmful Effects
• Savings: High inflation decreases the value of money, reducing savings.
• Investment: Due to reduced savings, capital investment decreases, hindering economic growth.
• Poverty and Unemployment: High prices increase the cost of living, leading to a rise in
poverty and unemployment.
• Exports and Imports: Exports become costly, and imports become cheap, harming the
country's balance of trade.
• Corruption and Black Marketing: Price rise encourages corruption, hoarding, and black
marketing.

Measures to Control Price Rise

The government takes three main steps to control price rise: Monetary Measures, Fiscal Measures,
and Administrative Measures.
1. Monetary Measures
These measures are taken by the Reserve Bank of India (RBI):
• Raising the Bank Rate: The RBI increases the Bank Rate (the interest rate at which it lends
money to commercial banks). This makes loans for commercial banks costlier, which in turn
increases the interest rate for public loans, reducing the money supply and demand.
• Open Market Operations: The RBI sells government bonds to the public and commercial
banks, withdrawing money from the market to reduce the money supply.
• Raising Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): The RBI
increases the required reserves (CRR and SLR) that commercial banks must keep. This limits
the banks' ability to give loans, decreasing the money supply.
• Credit Rationing: RBI controls the amount of credit given for different sectors, limiting
speculative investment.
2. Fiscal Measures
These measures are taken by the Government:
• Reduction in Public Expenditure: The government reduces its expenditure on unnecessary
administrative and welfare schemes, slowing down the money circulation.
• Increase in Public Debt: The government takes loans from the public to withdraw extra money
from the market.
• Increase in Taxes: The government increases taxes on goods and services, which reduces the
disposable income and purchasing capacity of the people.
• Budget Surplus: The government aims for a budget surplus (where government income is
higher than expenditure) to reduce the flow of money.
3. Administrative Measures
• Increase in Supply: Government increases the supply of essential goods by increasing
production, importing goods (e.g., pulses, edible oil), or releasing stock from buffer reserves.
• Price and Rationing Control: The government can implement a price and rationing control
system to stabilize prices, which is used only as a last resort.
• Controlling Hoarding: The government uses legal measures to control hoarding, black
marketing, and unauthorized stock.

Consumer Awareness
Consumer means a person who purchases goods or services in exchange for consideration (money).
In India, consumer awareness began with the Consumer Movement. The goal of the Consumer
Movement is to protect the consumer from the exploitation of producers and traders.
Causes of Consumer Exploitation
• Low Educational Level: Illiteracy and lack of information make consumers easy to exploit.
• Scarcity and Shortage: The shortage of goods (scarcity) leads to black marketing and higher
prices.
• Misleading Advertisements: False or misleading ads convince consumers to buy low-quality
products.
• Limited Competition: Limited options for purchasing goods.
• Unorganized Consumers: Lack of organized consumer societies makes it difficult to fight
exploitation.
• Fraud in Weights and Measures: Cheating in weighing and measuring products.
• Low Quality: Selling low-quality or adulterated goods.
Rights and Duties of Consumers
Consumer Rights:
1. Right to Safety: The right to be protected against the marketing of goods and services which
are hazardous to life and property.
2. Right to Information: The right to be informed about the quality, quantity, potency, purity,
standard, and price of goods to protect the consumer against unfair trade practices.
3. Right to Choose: The right to be assured, wherever possible, of access to a variety of goods
and services at competitive prices.
4. Right to be Heard: The right to be heard and to be assured that consumer interests will receive
due consideration at appropriate forums.
5. Right to Redress: The right to seek redressal against unfair trade practices or unscrupulous
exploitation of consumers.
6. Right to Consumer Education: The right to acquire the knowledge and skill to be an informed
consumer throughout life.
Consumer Duties:
1. The consumer should purchase goods only after checking their purity, quality, and guarantees
(e.g., ISI, ISO, Agmark).
2. The consumer should get a proper bill or receipt when buying.
3. The consumer should demand full information about the goods (price, weight, quality).
4. The consumer should be an organized consumer and join consumer societies.
5. The consumer should complain against exploitation and cheating.
6. The consumer should avoid tempting ads and choose wisely.
Consumer Protection Act (COPRA - 1986)
• This act was passed in the Indian Parliament in 1986 to protect consumers from exploitation.
• It became effective from 15 April 1987 in the whole of India (except Jammu and Kashmir).
• It is called the "Magna Carta" of the Indian Consumer.
• It led to the establishment of three-tier quasi-judicial machinery for resolving consumer
complaints:
• District Forum (up to 20 lakh value)
• State Commission (up to 1 crore value)
• National Commission (over 1 crore value)
Consumer Protection Day
• National Consumer Day: 24th December (on this day, COPRA was passed in 1986).
• World Consumer Rights Day: 15th March.
Ways for Consumer Protection
(A) Legal Provisions:
• Act to Control Hoarding, Black Marketing, and Adulteration helps.
• Essential Commodities Act, 1955 and Weights and Measures Act, 1976 fight illegal
activities.
(B) Consumer Societies (Organizations):
• These are non-political and non-commercial organizations that help consumers by creating
awareness.
• They provide consumer education through awareness programmes on rights, duties, and
exploitation.
• They publish magazines or periodicals like "Grahak Suraksha," "Insight," "The
Consumer," and "Grahak Manch" and try to bring awareness.
• They are helpful in the elimination of complaints of consumers.
(C) Public Distribution Systems (PDS):
• Under PDS, essential commodities of good quality are provided in fixed quantity at subsidized
rates to the poor at regular intervals from "Fair Price Shops".
• Thus the poor consumer is saved from the exploitation in the open market from where they have
to purchase goods at high rate, of low quality and less weight.
• Public Distribution System also controls corrupt practices of traders.
(D) System Certifying Weights and Measures and Purity of Goods:
• For the health and safety of consumers, government has set up many legal institutes which
perform the task of checking the quality, quantity and purity of produced goods and certifies
them (e.g., ISI, ISO, Agmark).