Answer:
Causes for rise in prices in India are:
(i) When cost of production goes up because of the increase in the prices of raw materials, the increased cost is added to the existing price levels.
(ii) When people have more income in their hands, their demand for goods and services increase. If this increase is not met by increase in supply of goods and services, there is shortage. This increases the price of goods and services.
(iii) The government keeps on raising the process of number of commodities (e.g. petroleum) from time to time. All these revisions in the administered prices have contributed to the price-rise in recent years.
(iv) Hoarding by producers, wholesalers especially when production goes down in the country, aggravates scarcity conditions and pushes up the price level.
(v) Imposition of Indirect taxes like excise and custom duties, and sales tax gives an opportunity to trading class to raise the prices.
(vi) Increase in population creates pressure on the demand for goods and services which in turn becomes the cause for price rise.
Public Distribution System: Government of India, under its public distribution system ensures the availability of essential commodities such as wheat, rice, sugar, edible oil and kerosene oil to the consumers at reasonable prices through a network of fair price shops. At present, there are about 4.61 lakh of fair price shops in the country. Subsidies are borne by the government.
Administrative Price Mechanism: Administrative prices are those prices of goods and services, which are controlled by the government. Government of India has imposed price controls on a number of commodities, e.g., steel, automobiles, etc. Producers of these commodities cannot charge prices higher than the maximum prices fixed by the Government.
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