Price rise: What are the possible causes?

Price rise is the buzz-word these days. The rise in prices of essential commodities has been bothering people for quite sometime now. But the governments don't seem to be taking any measure to address this problem except for making some statements. Everyone seems to be putting the blame on hoarding of commodities, exports, introduction of commodity futures, etc. But the real problem is something else, in my view.

First of all ours is a highly regulated economy with too much of unaccounted money. All the while, this money was chasing real-estate. But recession has changed this trend quite a bit. With so much of disposable incomes not finding investment avenues, people tend to be more liberal with other expenses like travel, food, automobiles, dining-out etc. All these activities translate to a lot of money into other pockets as well (like auto salesmen, food joints, travel agents, etc). When these others also start spending, it is a chain-reaction. Indian tend to spend a lot of money on food. A recent Mckinsey survey found that Indians spend 42% of their income (which is accounted for) on food & beverages.

Secondly, there are these APMCs (Agricultural Produce Marketing Committees) which consists of middlemen who buy up the produce from the farmers at low prices and sell to the retailers and make handsome profits. Unless the governments scrap the APMC act which forces the farmers to sell their produce to these folks, we will not see fair prices. If the retailers can buy directly from the farmers, then at-least the farmers will make more money. This anomaly needs to be fixed.

The last straw in this price imbroglio is the government's policy of fixing minimum support price for commodities and buying the produce from the farmers and putting it in its warehouses and let it rot. It should let market determine the price and compensate farmers in other ways rather than try to fix the price. They should stop the quota system like the ones which require sugarcane farmers to sell their produce to a particular sugar factory at a given price. This will only make the sugar barons richer and will not benefit either the farmer or the end-consumer.

In summary, the government policies are the root cause for the current price rise. Unless they take bold steps to fix the anomalies, the situation is only going to get worse. Of-course, some steps to boost the real-estate market may provide a quick fix to the problem!