Price rise does occur in the process of economic development. But in India the rise of price has been much higher than what it should have been.
Following are the causes of price rise:
(a) Black Marketing:
It broadly means holding the inventories and selling it at higher price. It creates artificial scarcity in the economy inspite of increase in production and results in price rise,
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(6) Black money:
In 1999-2000 India has reported to have the circulation of Rs. 7800 crores as unrecorded money, i.e., Black Money in the country. Black money encourages the people to the demand of goods and services in the economy thereby leading to high rise in general price level.
(c) Rapid Growth of Population:
The rapid growth of population means more mouths to feed, more demand of clothing and basic necessities as compared to supply of goods and services which result in price rise.
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(d) Deficit Financing:
It means printing more currency notes and coins. In India deficit financing is done mainly to meet the budgetary deficit. It results in more supply of money in the economy but when increase in supply of money corresponds with less increase in the supply of goods and services (National output) there is rise in price of goods and services.
(e) Increase in Money Supply:
Money supply includes currency notes and coins, demands and time deposits. Increase in money supply shows that people in an economy are ready to spend more money for buying goods and services.