Why Inflation is an Agent of Poverty?

Posted by: on Nov 7, 2011 | 10 Comments

India has had high inflation compared to most nations. The inflationary situation has been volatile since the financial year beginning 2010.The inflation in the Indian economy reached as high as 14.86% in April 2010.

Inflation is an agent of poverty. It not only impacts the purchasing power of the lower income group, but also hits the financial capacity of the middle classes. High inflation destroys the wealth of the middle class.

What Causes Inflation in the Economy?

Excess supply of money by the government is the cause of inflation. In an attempt to meet it’s ever rising expenses governments create money – if the production capacity does not keep pace with increase in money supply there is too much money chasing too few goods. Result is inflation. What does the government do with all this money? Mostly it pays itself and during election times it engages in populist policies to buy votes.

How Does Inflation Impact the People?

When the gap between demand and supply is widened, consumers are forced to change their purchasing habits. This can result in manufacturers cutting down production, further adding pressure to the supply side and pushing up the prices; thus creating a vicious cycle. Other ways in which high inflation in an economy affects the people are:

Reduced savings and investment: This is because inflation creates economic uncertainty.
Lesser purchasing options: This is because manufacturers do not have an incentive to spend on new equipment and technology, thus preventing them from creating superior products.
Depreciation in currency: Inflation leads to decline of the trade balance, which puts pressure on the currency- causing it to depreciate and thus makes imports more expensive as well.

What is the Reason for Nepal’s Poverty?

Posted by: on Nov 4, 2011 | 5 Comments

Nepal is among the world’s poorest countries. Poverty in this small nation is not only persistent, but is widespread. According to the 2010 Nepal Living Standards Survey, conducted by the Central Bureau of Statistics and the World Bank, 25.2% of the country’s population lives below the poverty line.

Moreover, the World Bank reported that everyone in Nepal, leaving a handful of professionals, businessman and large farmers, is poor. Today, more than 9 million people in the country are projected to be living on an income of less than $1 a day.

 

Why is Nepal Shackled by Poverty?

 

Low agricultural productivity is one of the principal reasons for Nepal’s financial weakness. The nation’s economy relies heavily on agricultural activities, which employ approximately 80 percent of the country’s labor force. It is estimated that the over-dependence on agriculture has prevailed despite a decrease in the consumption levels. Production of chief food grains in the country has increased only marginally in the last two decades.
If Nepal has to progress it must see a rapid exodus of Nepalese citizens from agriculture to industries and services. Before 1800 the US also had an overwhelming percentage of it’s population in agriculture. Today less than 30% of the people of US are employed on farms and supply grains and other produce to many parts of the world. The government allowed industry to thrive with business friendly policies. Nepal must do likewise.
Some other reasons for Nepal’s dismal economic state are:
Inadequate infrastructural facilities: People in Nepal, particularly those who live in rural areas, suffer from sub-standard and inefficient health services. The cost of medical treatment in the country is also fairly high. The public expenditure in education is very low and wasted. Finally, there is limited accessibility to basic infrastructure like roads. As a result, people living in the remote areas in the mountain districts struggle to gain economic independence. The government has neither the resources nor the expertise to develop infrastructure. It should allow private sector – domestic and international to fill this gap.
The economic situation in Nepal is unlikely to show progress without government policies that are ‘pro-business’. There is also a serious need for the government to create sufficient employment opportunities, which is only possible by encouraging new industries to flourish in the country. How does it encourage industry? Eliminate curbs on foreign investment, end the income tax. Lower taxes on imports and production and free the trade in goods and foreign exchange.

The Hunt for the Poor

Posted by: on Jan 31, 2005 | No Comments

My grandmother sought the poor all her life. This hunt intensified during the last few years of her life; being bedridden, she realized that she didn’t have long to live and, therefore, her time for giving was limited. She believed that the way to heaven was by giving. Beggars might have lived without her munificence but I doubt if she could have breathed without them. No giving, no salvation.

The desperate cries of international aid organizations, UN agencies, ADB, NGO’s, INGO’s that, ‘the poor are still among us and we need funds’, reminds me of my grandmother. Without the poor, these agencies cannot justify their existence. They need the poor just like my grandmother needed them.

The problem for those who work in these organizations for uplifting the poor is that people who depend on alms are becoming fewer. And those who are poor are realizing that it is not aid and charity which is going to deliver them from poverty but opportunity.

And this opportunity is being unleashed by the forces of globalization. Look at China and India. These two countries housed the world’s poor. Both have become more open to the world and in doing so are eliminating poverty at a breathtaking pace.

Economic reforms started in the 70’s in China and 90’s in India have done more to eliminate poverty than the combined efforts of all aid agencies could have achieved in the next 100 years. And this removal of poverty has come accompanied with self-respect and dignity unlike the affront and indignity inherent in receiving charity.

These facts are inconvenient to those involved in the effort to increase charitable funding for the poor. The facts lead to an irrefutable conclusion: that what can end poverty is not charity but openness to trade, commerce and investment. This would mean that aid should end, but obviously the seekers of the poor have no desire to becoming unemployed.

The forces of globalization appear irreversible. Even in countries like Nepal where the government has failed to create conditions for economic growth, the poverty levels are falling. There might be limited opportunity but the youth still have an out: they can go abroad. And they are doing just that. Those who cannot go to the US, UK, Canada, or Australia go to the Middle East, Malaysia, or South Korea. For those unable to go anywhere else, India is open.

It is this increasing opportunity worldwide that is keeping the Nepali economy ticking. Despite being one of the worst managed economies, Nepal is still managing growth rates of 4%. Remittances from those who are abroad in better managed globalised lands are doing the trick.

Apart from Nepal, which caters to the needs of thousands of NGO’s, the other bright spot for aid givers is the continent of Africa. There the aid agencies have succeeded spectacularly in supporting poverty.

They have given aid to support brutal dictators like Idi Amin in Uganda who killed and tortured hundreds of thousands and threw foreign businessmen out of his country. They supported Mobuto of Zaire who stashed 80% of the $5billion in aid in his personal Swiss banks. The current favourite is Mugabe who has expropriated the land and wealth of foreigners and destroyed agriculture in Zimbabwe. His population depends on aid. NGO’s could not be happier.

However, inspite of the African dictators and Nepal, it appears that poverty as we know it is going to disappear. So will aid agencies just wind up? No chance of that happening anytime soon. Moves are afoot to change the definition of poverty. Upto now poor have been defined as those who survive on less than a dollar a day. ADB has already said that it considers the poor to be those who earn less than two dollars in a day. Watch out as poverty gets redefined by aid agencies.

I predict that very shortly every one of these agents of poverty would adopt the $2 standard and when everyone earns over that amount then the line will be shifted to $4. The poor will always be there, because the givers, just like my grandma, cannot exist without them.

The Himalyan Times