Economic Problems: Inflation, Unemployment and Poverty

access_time February 9, 2024
perm_identity Posted by Admin

ECONOMIC PROBLEMS

Economic problems are challenges or issues that arise in the production, distribution, and consumption of goods and services. These problems can be caused by various factors, such as scarcity of resources, changes in demand or supply, technological changes, and shifts in the global economy. Some common economic problems include unemployment, inflation, trade deficits, and income inequality. Governments, businesses, and individuals must work together to find solutions to these problems in order to maintain a healthy and stable economy.

MAJOR INDIAN ECONOMIC PROBLEMS

There are many economic problems that countries and individuals face. Some common economic problems include:

INFLATION

Inflation is a rise in prices, which can be translated as the decline Purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage,means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.

Inflation is a sustained increase in the general level of prices of goods and services in an economy over a period of time. In other words, it is a decrease in the purchasing power of money. Inflation is measured by the inflation rate, which is the percentage change in the average price level of goods and services over a given period of time.

There are different types of inflation, such as demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull inflation occurs when there is an increase in demand for goods and services, leading to higher prices. Cost-push inflation, on the other hand, occurs when there is an increase in production costs, such as wages, raw materials, or energy, leading to higher prices. Built-in inflation refers to the tendency of workers to demand higher wages to keep up with rising prices.

Inflation can have both positive and negative effects on an economy. On the positive side, moderate inflation can encourage spending and investment, as people tend to buy goods and services before prices rise further. Inflation can also reduce the real value of debt, making it easier for borrowers to pay back their loans. Additionally, inflation can incentivize businesses to invest in new technology and increase productivity to keep costs low.

On the negative side, inflation can reduce the purchasing power of people's savings and wages, leading to a decrease in their standard of living. High inflation can also lead to uncertainty and instability in the economy, making it difficult for businesses to plan for the future. Additionally, inflation can lead to an increase in interest rates, which can make borrowing more expensive and decrease investment and consumption.

Governments and central banks use various policies to control inflation, such as monetary policy and fiscal policy. Monetary policy involves adjusting interest rates and money supply to control inflation. Fiscal policy involves government spending and taxation to influence the level of demand in the economy. The goal is to maintain a low and stable inflation rate to promote economic growth and stability.

CAUSES OF INFLATION

While an increase in the money supply is often a key factor in causing inflation, it is not the only factor. In general, inflation occurs when there is an imbalance between the supply and demand for goods and services in an economy. Below are some of the causes of inflation:

  1. Increase in the money supply: As mentioned, increasing the money supply can lead to inflation because it increases the amount of money available to be spent on goods and services.
  2. Demand-pull inflation: This occurs when the demand for goods and services exceeds the available supply, leading to an increase in prices. This can happen when there is an increase in consumer or government spending, a decrease in taxes, or an increase in exports.
  3. Cost-push inflation: This occurs when the cost of production increases, leading to an increase in prices. This can happen due to an increase in the price of raw materials, labor costs, or energy prices.
  4. Exchange rate changes: If a country's currency depreciates relative to other currencies, the prices of imported goods will increase, leading to inflation.
  5. Inflation expectations: If people expect that inflation will increase, they may increase their spending to buy goods and services before prices rise further, leading to a self-fulfilling prophecy.
  6. Supply chain disruptions: Supply chain disruptions can lead to a decrease in the supply of goods and services, leading to an increase in prices.
  7. Natural disasters: Natural disasters such as floods or droughts can lead to a decrease in the supply of goods and services, leading to an increase in prices.
  8. Monopoly power: In some cases, a single company or group of companies may have significant market power, allowing them to raise prices and cause inflation.

Inflation can have both positive and negative effects on an economy. However, high and persistent inflation can lead to significant economic problems, such as a decrease in the purchasing power of money, a decrease in the standard of living, and economic instability. Governments and central banks use various policies to control inflation, such as monetary policy and fiscal policy. The goal is to maintain a low and stable inflation rate to promote economic growth and stability.

UNEMPLYOMENT

Unemployment refers to the situation where people who are willing and able to work are unable to find employment opportunities. Unemployment is a significant economic and social problem that can have adverse effects on individuals, families, and the economy as a whole.

There are different types of unemployment, including:

  1. FRICTIONAL UNEMPLOYMENT : This type of unemployment occurs when people are between jobs or are searching for new jobs. It is a natural part of the labor market and can occur even in a healthy economy.
  2. STRUCTURAL UNEMPLOYMENT : This type of unemployment occurs when there is a mismatch between the skills of workers and the skills required by available jobs. It can occur due to changes in technology, globalization, or changes in the structure of the economy.
  3. CYCLICAL UNEMPLOYMENT : This type of unemployment occurs due to fluctuations in the business cycle. When the economy enters a recession or downturn, companies may lay off workers, leading to an increase in cyclical unemployment.
  4. SEASONAL UNEMPLOYMENT : This type of unemployment occurs when workers are employed in jobs that are seasonal, such as tourism, agriculture, or construction. When the season ends, they become unemployed until the next season begins.

Unemployment can have significant economic and social costs. It can lead to a decrease in the standard of living, as unemployed individuals may have difficulty paying for basic needs such as food, housing, and healthcare. Unemployment can also lead to a decrease in economic growth, as unemployed individuals are not contributing to the production of goods and services, leading to a decrease in output.

Governments use various policies to reduce unemployment, such as monetary policy, fiscal policy, and labor market policies. Monetary policy involves adjusting interest rates to influence economic growth and employment. Fiscal policy involves government spending and taxation to stimulate economic activity and employment. Labor market policies involve measures to improve the efficiency of the labor market, such as training programs, job matching services, and unemployment benefits.

Reducing unemployment is an important policy goal for governments, as it can improve the standard of living for individuals and promote economic growth and stability.

NATURE AND EXTENT OF UNEMPLOYMENT IN INDIA

Unemployment is a significant economic and social problem in India, and its extent and nature vary across different regions, genders, and education levels. Here are some key aspects of the nature and extent of unemployment in India:

  1. HIGH OVERALL UNEMPLOYMENT RATE: India's overall unemployment rate was 6.9% in 2019-20, according to the Periodic Labour Force Survey (PLFS) conducted by the National Statistical Office (NSO). However, due to the COVID-19 pandemic, the unemployment rate has increased, reaching 9.1% in December 2021, according to the Centre for Monitoring Indian Economy (CMIE).
  2. HIGH YOUTH UNEMPLOYMENT: Youth unemployment (ages 15-29) is a major concern in India, with an unemployment rate of 24.5% in 2019-20, according to the PLFS. This is significantly higher than the overall unemployment rate.
  3. GENDER DISPARITY IN UNEMPLOYMENT: Women have higher unemployment rates than men in India, with a rate of 7.9% for women and 6.4% for men in 2019-20, according to the PLFS.
  4. INFORMAL SECTOR EMPLOYMENT: A significant proportion of the Indian workforce is employed in the informal sector, which lacks job security, benefits, and legal protections. According to the PLFS, about 75% of employed persons in India were engaged in the informal sector in 2019-20.
  5. SKILL MISMATCH: There is a mismatch between the skills possessed by the Indian workforce and the skills demanded by the job market. This results in underemployment, which is the situation where a person is employed in a job that does not utilize their full potential and skills.
  6. URBAN-RURAL DIVIDE: Unemployment rates are generally higher in rural areas than in urban areas, with the rural unemployment rate being 7.9% and the urban rate being 6.4% in 2019-20, according to the PLFS.
  7. CASTE-BASED DISCRIMINATION: There is also evidence of caste-based discrimination in the Indian labor market, with certain castes facing higher unemployment rates than others.

Reducing unemployment is a significant policy challenge for the Indian government, and it requires targeted policies to address the specific causes of unemployment in different regions and sectors of the economy. Some of the measures that can help to reduce unemployment in India include improving the quality of education and training, promoting the formalization of the informal sector, providing employment opportunities in rural areas, and implementing policies that reduce discrimination in the labor market.

POVERTY

Poverty refers to the social condition in which a part of the society is unable to fulfill its basic requirements. When a big portion of the population is deprived of the minimum living standard and survives only on the survival level, then it is said that poverty is widely spread in the population.

India is recognized as a poor country even after around 70 years of independence. Especially in the Rural Sector of India, the condition is worse. Though during the planning periods the national income of-India and the per capita income has increased, social welfare has increased, literacy level has risen and people have been able to fulfill more and more of their requirements but poverty (and especially Rural Poverty) is still present in its alarming form.

CAUSES OF UNEMPLOYMENT AND POVERTY IN INDIA

1. CASTE SYSTEM

  • The caste system, a structure of social potentially pervade virtually.
  • The result is higher levels of unemployment.
  • In some locations, certain kinds of work are prohibited for member for particular caste.

2. INCREASE IN POPULATION

  • India population exceeds china by the year 2024
  • The probably be the most popular country of 21th century.
  • As the country’s economic growth cannot keep up with population growth, so that bulk of population became unemployed.

3. LOSS OF SMALL SCALE

  • There is a loss of small scale cottage industries.
  • They do not affect the economics on large and small scale industry.
  • The result is that small industry became declined
  • The artisans have also become unemployed.

4. LOW RATE OF SAVING AND INVESTMENT

  • India lacks sufficient Capital across the board
  • Saving are low then result investment are also low.
  • Were there higher rates of investment, new jobs would be created in the economy.
  • There is lack of investment in rural areas and tier 2 and 3 cities as well.
  • There is exists large untapped employment potential.

5. INEFFECTIVE ECONOMIC PLANNING

  • There have been no effective economic planning.
  • It is crucial that the supply and demand of labour are in balance.
  • To ensure that those who need jobs are able to get them
  • Otherwise individual will complete one job.

6. LACK OF ESSENTIAL SKILLING

  • As study there 33% of educated youth in India are unemployed due to lack of future skills
  • Millions of students in our country are remain unemployed even complete higher education.

STEPS TAKEN BY GOVERNMENT TO SOLVE THE PROBLEM

1. EMPLOYMENT GUARANTEE SCHEME

Mahatma Gandhi National Rural Employment Guarantee Act 2005 or MNREGA, earlier known as the National Rural Employment Guarantee Act or NREGA, is an Indian labor law and social security measure that aims to guarantee the 'right to work'.

2. SWARNAJAYANTI GRAM SWAROZGAR YOJANA

Swarnajayanti Gram Swarozgar Yojana is a scheme under which BPL families are formed as self-help groups and funded through bank loans and government funds. The main function of these groups is to help all such families cross the poverty line.

3. SWARNA JYANTI SHAHARI ROZGAR YOJNA

Swarna Jayanti Shahari Rozgar Yojana (SJSRY) in India is a Centrally Sponsored Scheme which came into effect on 1 December 1997. The scheme strives to provide gainful employment to the urban unemployed and underemployed poor, through encouraging the setting up of self-employment ventures or provision of wage employment.

4.PARDHAN MANTRI ROZGAR YOJNA 

This scheme is being implemented since 1993. It aims at creating and providing sustainable self employment opportunities to more than one million educated unemployment youth.

5.JAWAHAR ROZGAR YOJANA

On 1st April 1989, the government announced a new wage employment scheme, the jawahar Rozgar Yojana for intensive employment creation in 120 backward districts. It was restricted to rural area.

6. START UP INDIA INCENTIVE

It was introduced in January 2016 with an aspiration to impart more strength and inspiration to the talented young generation of India to do something new for India and humanity.

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