Economics You Should Know

The price of cement

Bhandari uncle is having a bad week. The cement that he bought from his distributor at ₹320 per bag six months ago now costs ₹380. His regular customers — small contractors building houses in and around Haldwani — are not happy.

"Bhandari ji, pichle saal toh 320 tha, ab 380 kyun?" asks Ramesh, a contractor who's been buying from him for eight years.

Bhandari uncle sighs. He's not making more money on each bag — his margin is about the same. His costs went up too. The distributor raised prices, the transport from the depot in Rudrapur got more expensive because diesel went up, and his shop rent just increased by ₹2,000 a month.

What's happening here? Why did everything get more expensive at the same time?

Welcome to economics. Don't worry — we're not going to get academic about this. We're only going to learn the parts that directly affect your business decisions. If you run a shop, a farm, a restaurant, or any business, these forces are acting on you every single day. Understanding them means you stop being surprised and start being prepared.

Supply and Demand — the engine of every market

Here's the most fundamental idea in economics, and it's also the most intuitive.

Demand — how many people want something. Supply — how much of it is available.

When a lot of people want something but there isn't much of it, the price goes up. When there's a lot of something but not many people want it, the price goes down.

That's it. This single idea explains most of what happens in any market.

Rawat ji knows this instinctively. His apples from Ranikhet are ready in September-October, right when every orchard in Uttarakhand is harvesting. The market is flooded with apples. Prices crash — sometimes to ₹20-25 per kg at the mandi, barely covering his costs.

But if he could cold-store some apples and sell them in January-February, when supply drops, the price goes up to ₹60-80 per kg. Same apples. Different supply in the market. Completely different price.

This is supply and demand at work. And it's one reason Rawat ji is thinking about cold storage and juice processing — to escape the tyranny of the harvest-season price crash.

How this affects your business

• If you sell something seasonal (like Rawat ji's apples, or tourist services like Neema's homestay), your revenue will fluctuate with demand. Plan for it.
• If your raw material prices depend on supply (like Bhandari uncle's cement), your margins will get squeezed when supply is tight. You need pricing flexibility.
• If you're entering a crowded market (high supply of similar businesses), you'll face pricing pressure. Either differentiate or accept lower margins.
• If you're the only one solving a problem (low supply, decent demand), you have pricing power. Use it wisely.

Why prices change

Prices aren't fixed. They move — sometimes slowly, sometimes suddenly. Here's why:

Input costs change. If the price of milk goes up, Pushpa didi's chai costs more to make. If she doesn't raise her price, her margin shrinks.

Demand shifts. Rishikesh gets flooded with tourists during yoga season and Char Dham yatra months. Room prices, food prices, everything goes up because demand spikes. In the monsoon off-season, the same hotel room that costs ₹3,000 drops to ₹800.

Competition arrives. A new hardware shop opens two lanes away from Bhandari uncle. He might need to match their prices or lose customers. More competition = downward price pressure.

Government policy changes. A new tax, a new subsidy, a new regulation — all affect prices. When GST was introduced, many products saw price changes overnight.

Global events. Russia-Ukraine war pushed up fuel and fertilizer prices worldwide. Bhandari uncle's cement got expensive partly because of energy costs thousands of kilometers away. In a connected economy, distant events have local consequences.

Lesson for business owners: You can't control prices in the market. But you can control your response — adjust your pricing, diversify your suppliers, build inventory when things are cheap, and always have a margin buffer for bad months.

Inflation — the silent tax

Inflation means the general level of prices is going up over time. Not one thing getting expensive — everything slowly getting more expensive.

India's inflation has been between 4-7% in most recent years. What does that mean practically?

If inflation is 6%, then something that costs ₹100 today will cost roughly ₹106 next year. That doesn't sound like much. But compound it over a few years:

A cup of chai that costs ₹20 today might cost ₹36 in ten years. Pushpa didi's rent, her gas costs, milk — everything creeps up.

Why inflation matters for your business

1. Your costs go up every year. If you don't raise your prices, your profit shrinks — even if nothing else changes. This is the most common slow killer of small businesses.

2. Your savings lose value. ₹10 lakh sitting in a savings account earning 3.5% interest is actually losing value if inflation is 6%. The money is growing, but prices are growing faster.

3. Fixed-price contracts are dangerous. If you agreed to supply something at ₹50 per unit for two years, and your costs go up 10% in that time, you're losing money on every unit by the second year.

4. Your employees need raises. If you don't increase salaries with inflation, your team is effectively earning less every year. Good people will leave.

Pushpa didi was charging ₹15 for chai two years ago. Milk went from ₹50 to ₹62 per litre. Sugar went up. Gas went up. She was making less profit on each cup but was afraid to raise prices because customers might go elsewhere.

Bhandari uncle told her: "Didi, agar aap daam nahi badhaaogi toh ek din dukaan band karni padegi. Customer ko bhi pata hai ki cheezein mehengi ho gayi hain."

She raised the price to ₹20. Lost a few customers for a week. Then they all came back. Her chai was still the best near Triveni Ghat.

Rule of thumb: Review your prices at least once a year. Inflation doesn't wait for you to be ready.

Interest rates — the cost of borrowing money

When you take a loan, you pay interest. The interest rate is the "price" of borrowing money.

If you borrow ₹5,00,000 at 12% annual interest:

• You pay ₹60,000 per year just as the cost of having that money
• That's ₹5,000 per month — before you've even started repaying the principal

How interest rates affect your business

When interest rates go up:

• Loans become more expensive
• EMIs increase (if floating rate)
• Fewer people buy houses, vehicles, big items → less demand in those industries
• Businesses borrow less and expand less
• The whole economy slows down a bit

When interest rates go down:

• Loans become cheaper
• People borrow more, buy more
• Businesses expand, hire more
• The economy speeds up

Neema and Jyoti took a ₹12 lakh loan to renovate their homestay in Munsiyari. The interest rate was 10.5%. Their EMI was about ₹25,800 per month for 5 years.

When the RBI raised rates, their floating rate went up to 11.5%. EMI jumped to ₹26,400. That's ₹600 extra per month — ₹7,200 per year — that comes straight out of their profit. Doesn't sound like much, but for a small homestay, every thousand matters.

"Bank ke rates badhte hain toh humara kharcha badhta hai," Jyoti noted in their expense diary.

Key takeaway: If you have loans, understand whether your rate is fixed or floating. Budget for the possibility of rates going up. And when rates are low, that's often a good time to borrow for genuine expansion — not to splurge.

Market cycles — good times don't last, bad times don't either

Every market — whether it's the stock market, the real estate market, or the market for your product — goes through cycles.

Boom → things are going well, demand is high, people are spending, businesses are growing.

Correction → things slow down, demand drops, spending tightens.

Recession → things are bad, people cut spending, businesses struggle, some shut down.

Recovery → things slowly start getting better again.

Then boom again. The cycle repeats.

Neema and Jyoti experienced this firsthand. Their homestay was booming from 2018-2019. Bookings were full, they were thinking of a second location. Then COVID hit in 2020. Zero tourists. Zero income. For months. They survived because they had some savings and their family supported them.

By 2022, travel came back with a vengeance. Uttarakhand saw record tourism. They opened their second location in Binsar and it was profitable within six months.

"Bure waqt mein himmat rakhni hoti hai. Aur acche waqt mein paagal nahi hona hota," Neema says now.

What this means for your business

1. Save during good times. When business is booming, don't spend everything. Build a reserve. The bad times will come — it's not pessimism, it's pattern.

2. Don't over-expand at the peak. The worst time to take a big loan and open a new branch is when everything seems perfect. That's usually close to the top.

3. Don't panic during downturns. Cut costs where you can, but don't destroy your business by firing your best people or stopping all marketing. When the recovery comes, you want to be ready.

4. Watch for signals. Are people spending less? Are your orders declining? Are other businesses in your area struggling? These are signs that a downturn may be coming.

Local economy vs National economy

The news talks about GDP growth, Sensex hitting new highs, India becoming the 5th largest economy. That's the national picture.

But your business runs in a local economy — your town, your district, your customer base.

Haldwani's economy is driven by a few things: it's a gateway to Kumaon hill stations, so there's tourist traffic. It has a growing population as people migrate from the hills. It has mandis for agricultural produce. And it has a large government employee population.

When the state government announces a pay commission revision, Haldwani's market picks up — because government employees suddenly have more money to spend. When apple harvest is bad in the hills, the mandi volumes drop and all the businesses that depend on mandi traffic suffer.

None of this shows up in GDP numbers. But it affects Bhandari uncle's sales directly.

Understanding your local economy

• What drives spending in your area? Tourism? Agriculture? Government jobs? Industry? An IT hub?
• What's seasonal? In Uttarakhand, tourist season (March-June, September-November) is very different from off-season.
• What are the risks? A single-industry town is vulnerable if that industry struggles.
• Who are your real competitors? Not some company in Bangalore — the shop down the street.

Your business strategy should be based on your local reality, not national headlines.

Putting it together

Bhandari uncle now understands why his cement costs ₹380 instead of ₹320. Fuel prices went up (global oil markets). The manufacturer passed on the cost (inflation). The construction season in Uttarakhand is at its peak before monsoon (demand spike). And a new government housing scheme created more demand for building materials (policy effect).

He can't change any of these forces. But he can:

• Adjust his selling price to maintain his margin (he raised it from ₹410 to ₹445)
• Stock up early when prices are lower (pre-monsoon, when construction slows)
• Negotiate better terms with his distributor by paying faster or buying in bulk
• Track his costs monthly so he's never caught off guard

"Market ki hawa badlegi — woh toh tay hai. Par agar hawa ka rukh pata ho, toh patang bhi udi rakhte hain," he says, with the confidence of 22 years in the market.

In the next chapter, Pushpa didi gets a visit from her nephew who's studying commerce in Dehradun. He looks at her notebook — her daily record of sales and expenses — and says, "Didi, this is great, but you're only doing half the work." It's time to learn accounting.