How the Public Distribution System and fiscal measures help in controlling price rise

Supply of essential commodities to the people through government agencies is known as Public Distribution System..

(a) The PDS is an important activity of the state to ensure food security to the people.

(b) The PDS controls the supply of essential commodities at subsidised rates which keeps the prices under control.

(c) The government has established Fair Price Shops through the Public Distribution System. Here the prices of essential commodities are less than the market prices. The cost of this price difference is borne by the government through subsides.

(d) The PDS controls unscrupulous rise in prices of essential goods in the market and it also checks the holding and black marketing by the profit makers.

Fiscal Measures:

(a) When the government decides to reduce the money in circulation, it imposes taxes on high income groups.

(b) When taxes are imposed on high income groups, it reduces the purchasing capacity of the people and thus reduces the price.

(c) Government imposes taxes on consumable goods that reduces consumption and consequently reduces its price.

When the taxes are added with the production cost the price of consumable goods goes up, which only a privileged class can afford thus the prices are controlled as the demand falls automatically.