The big bourgeoisie and its associations like the CII and the FICCI have rung alarm bells at the spectre of deflation in the country. Deflation means decrease in prices. It is the opposite of inflation or rise in prices that is observed most of the time.

Fall in prices leads to sharp drop in profits. This is the reason for alarm and this is why the big bourgeoisie is seeking the help of the government. Fall in prices is what people of the country have desired all the time. If prices are truly falling, people would welcome it but not the big bourgeoisie. It wants both prices and its profit to keep rising irrespective of its consequences on people.

According to Montek Singh Ahluwalia, if prices keep falling, people will not buy under expectation that prices will fall further. He has publicly advocated that prices should keep rising, to encourage buying! The issue arises, what kind of twisted logic this is that people will not buy necessities in the expectation that prices will fall further! It shows that Ahluwalia and the government he represents are only interested in fulfilling the capitalists desire for maximum profits, for which they are willing to give any kind of twisted “justification”. What suits the capitalist class suits the country — this is the logic “experts” of the finance ministry. 

The Government of India has announced that year-on-year inflation has fallen to just 0.4 percent. (This means, that according to the government, prices today have almost returned to what they were a year ago!)  It has further predicted that very shortly it will turn negative and stay negative for many weeks thereafter.

The first question is: have prices of goods used by people really started falling? The answer is No.

The government calculates the rate of inflation based on the Wholesale Price Index (WPI), not on the prices consumers pay in the market. In addition, food items, which constitute 50-80 percent of the total monthly expenditure for most families, have weightage of less than 25 percent in the basket of goods covered by the WPI. The other major expense of working class families is health costs including medicines, where prices have only been rising. The WPI therefore does not at all tell the truth about inflation.

The Consumer Price Index (CPI) is a closer reflection of inflation, as it affects people, since food items constitute 50 percent of the basket for calculating it. The rate of inflation measured by the CPI is still over 10 percent while the WPI based inflation is only 0.4 percent. Prices of food items themselves have risen by 10-30 percent during the last three months.

It is evident that the inflation rate measurement, given out by the government, has been deliberately distorted to suppress the true rate of inflation. This deliberate distortion works for the benefit of the bourgeoisie in many ways – legitimate wage increases are suppressed. Rate of interest on the savings kept by people with banks are kept lower than actual inflation. So the true value of savings of people in banks keeps falling instead of rising. The bourgeoisie is able to take huge loans at low rates of interest from financial institutions.

Due to the crisis in financial systems of other imperialist powers, the Indian bourgeoisie has been forced to rely heavily on the Indian finance capital institutions to meet all its capital requirements. It has therefore been repeatedly demanding that the RBI reduce interest rates. During the last four months the RBI has already brought down the interest rate for the money it lends to banks from 9 to 5 percent. The big bourgeoisie is, however, still not satisfied and wants a further reduction in the interest rate for consumer loans to stimulate demand and for the loans that it needs for investments within and outside the country.

The crisis today is a reflection of the fact that working masses have been so impoverished that they do not have the money to buy necessities. This has transformed some items which would have been considered necessities into luxuries. The crisis is an inevitable result of the system in which for the sake of maximum profits, the capitalist corporations have been squeezing the very life of workers and peasants.

The solution to the crisis is that economy is reoriented to ensure well being of working masses, not the profits of the capitalist corporations. The capitalist governments will never do so. Talk of deflation is being used to further the agenda of the big bourgeoisie of guaranteeing its profits at the expense lives and livelihood of the working masses.