The reasons for the price rise are as follows:

(i) Increase in the supply of money in the economy takes place when

1. the government resorts to deficit financing and prints new currency.
2. Increase in cash transactions in the market.
3. Additional money made available by reducing the rate of interest on the loans.

The increase in the public expenditure, Expenditure on defence unplanned expenditure, expenditure on welfare scheme lead “to increase in supply of money in the market.’ The increase in supply of money increases the purchasing power of the people. However, the supply of the goods and services do not increase to the extent of demand. This imbalance between the demand and supply results in the price rise.

(ii) Population growth: Population of India has increased from 102.70 crore in 2001 to 121.02 crore in 2011. Additional population means additional demand for goods and services. The imbalance between demand and supply results in the price rise.

(iii) Increase in export: The encouragement given by the government has considerably increased export of the Indian goods. Thereby the availability of the goods in the domestic market has decreased. This results in the shortage/scarcity of goods and increase in price.

(iv) Shortage of raw material: The shortage of raw material leads to increase in the prices of their products. This contributes to price rise in the market.