GS Paper 2:
Topics covered: International relations
Context: President of Sri Lanka declared an economic emergency on account to contain inflation which saw a huge spike after a steep fall in valuation of its currency caused a spike in food prices
What precipitated this unprecedented move?
- Since November 2019, the value of Sri Lankan rupee has eroded by about 20%
- High global market price due to the pandemic has escalated the prices of essential items
- Hoarding by traders has also contributed to Sri Lanka taking this emergency route to combat the crisis
- Tourism which happens to be one of the main businesses of Sri Lanka has suffered due to the travel restrictions placed owing to the pandemic. Sri Lanka’s economy shrank by a record 3.6% last year.
The declaration of economic emergency will empower Sri Lankan government to:
- Prevent the hoarding of essential items by traders
- Ensure essential items are sold at government-determined prices
- It will also help the government to realize import duties owed to the state by the traders
Inflation and the pandemic
Inflation is the rate of increase in prices over a given period of time. Inflation has been rising consistently since the pandemic hit in multiple countries; primarily owing to supply and demand-side disruptions owing to the pandemic.
Some of the causes behind the recent rise in Inflation:
- Rise in fuel prices. This is adding to the cost of production across multiple industries
- Volatility in labour market has been hampering the normal conduct of business
- There has been a rise in demand; particularly for essential commodities amongst the masses owing to the fear of lockdown. This has led to the behavior of hoarding amongst common people
- The menace of hoarding is still prevalent
- Increase in global prices is causing the products to be diverted to these markets owing to the possibility of greater product; this is creating shortage of products in the domestic market
- Erratic rainfall pattern has further exacerbated the inflation issue in some countries
- Ensure adequate supply of essential items through appropriate measures (Ex: prevention of hoarding)
- Monitor the pricing mechanisms of essential items to prevent any steep hike
- Intervention in the market through sale of government-held stocks to bring down the rate of essential items
- Bring petroleum under the GST bracket. This will reduce the multiplicity of taxes currently being imposed on the product
- Improve vaccine coverage so as to ensure minimal disruptions in the market going forward
Insta-curious link
How could inflation surge after the pandemic? Click here
Prelims link
- What is inflation?
- Causes and effects of inflation
- Reason behind rise in inflation in recent times in India
- Effects of currency appreciation and depreciation
Mains link
Discuss the possible ways to reduce inflation in India in the present circumstances
Source: The Hindu
