Indian Economy: News and Discussion (Jan 1 2010)

[joshvajohn]

Govt Should Deal with Black Money Issue: RBI
http://news.outlookindia.com/item.aspx?711530

Why not listen to RBI?

Black money: Government does not give names to court
http://www.sify.com/news/black-money-go ... cbijh.html

Is Government above Law?

Black money: Centre denies in SC charges of inaction
http://netindian.in/news/2011/02/09/000 ... s-inaction

Then what you call when you do not act? or do not want to act?

Par panel wants govt to track black money used for terrorism
http://www.business-standard.com/india/ ... /123885/on

Is GOvernment indirectly supporting terrorism by allowing black money to be channelised to these terror groups?

UPA afraid of disclosing the money launderers names
http://www.organiser.org/dynamic/module ... 84&page=14


Disease called black money
http://www.dailypioneer.com/316678/Dise ... money.html

Stashing away the loot
http://www.dailypioneer.com/315879/Stas ... -loot.html

[ramana]

Fast Company

India's Mighty Micro Economy

Patronizing language but heart is in right place.

.....
Finding a way to modernize the villages is key to making life better in India. Unlike China, Indian cities don't have the infrastructure to support a full-scale migration, nor does India have a powerful, autocratic government that can mold new satellite cities out of nothing. Delhi tried with Gurgaon, a city constructed so haphazardly that most of the companies operating there run off generators. India isn't 10 years behind China, as many pundits say. What worked for China won't work in India. India has to find another path to modernity. Even Mahatma Gandhi used to say: If you want to change India, change the villages.

Too high-minded social thinking for greed-based entrepreneurs? Hardly. The villages are where the mass market is in India. And if the country can crack the sachet equivalent of the digital revolution, it will have a leg up on bridging the same divide in Africa, Southeast Asia, and any corner of the world where the Web is experienced over a pay-as-you-go monthly phone.
....

[somnath]

Good article..But familiar territory..

What worked for China won't work in India. India has to find another path to modernity

Fareed Zakaria said in his book that the only country that resembles India's path to development is the United States! In many ways its true..

[wig]

the central board of direct taxes publishes figures diplaying the growth of direct tax collection
No.402/92/2006-MC (02 of 2011)

Central Board of Direct Taxes -PRESS RELEASE
Net direct tax collections during the period April 2010 to January 2011 stood at
Rs.3,17,501 crore, up from Rs.2,63,765 crore in the same period last fiscal, registering a growth
of 20.37 percent.
Growth in Corporate Income Tax was 24.78 percent (Rs.2,16,872 crore as against
Rs.1,73,799 crore), while Personal Income Tax (including STT, and residual FBT / BCTT) grew
at 11.87 percent (Rs.1,00,191 crore as against Rs.89,561 crore).
Direct tax collection is buoyant despite higher tax refunds, which stood at Rs.53,688
crore as against Rs.38,721 crore registering a growth of 38.65 percent.

and information sharing agreement with one of the global tax haven, isle of man

The Government has also entered into a Tax Information Exchange Agreement (TIEA)
with the Isle of Man on 4th February 2011 which provides for sharing information, including
exchange of banking and ownership information and also of past information in criminal tax
matters.

http://www.incometaxindia.gov.in/archiv ... 082011.pdf

[somnath]

http://www.indianexpress.com/news/iip-n ... 10/748811/

IIP decline..

[somnath]

And a perspective from the old master himself on the so-called "spectacular agri growth"..

http://www.indianexpress.com/news/the-f ... i/749109/0

[Uttam]

Another confirmation of what I commented earlier (see below) about export rising faster than import. This is a very encouraging sign. We saw this happen in November and again in January.
Same trend over last 3 quarters
April-January Exports Growth = 29.4%
April-January Imports Growth = 17.6%

Exports grow by 32% to $20.6 bn in Jan
February 12, 2011
India's exports grew by a healthy 32.5% year-on-year to $20.6 billion in January, 2011 on account of increasing demand in the western markets.

During April-January this fiscal, the country's shipments went up by 29.4% to $184.6 billion.

"It is a huge jump...Export performance is pretty damn good...By February, we should cross $200 billion," Commerce Secretary Rahul Khullar told reporters here.

Imports in January, 2011 is estimated to increase by 13.1% to $28.6 billion over the same period last year, leaving a trade deficit of $8 billion during the month under review, Khullar said.

During April-January, 2010-11, imports rose by 17.6% to $273.6 billion.

"The import numbers will be revised," Khullar added.

During the first 10 months of the financial year, trade deficit stood at $89 billion.

Sectors that registered healthy growth during April-January, 2010-11 include gems and jewellery, engineering and petroleum and oil lubricants, he added.

For once Exports increased faster than Imports, decreasing the rate of increase in trade deficit. Is this happening for the first time? (It may have happened before at smaller base or when there were too many restrictions on imports). If YES, then Is this a turning point for Indian Economy?

Your thoughts please....

November exports up 26.8% December 08, 2010

India's exports in November rose an annual 26.8 per cent to $18.9 billion, while imports for the month grew 11.2 per cent on the year to $27.8 billion, provisional data released by Trade Secretary Rahul Khullar showed on Wednesday.

Khullar said the figures could be revised upwards.
India's trade deficit in November stood at $8.9 billion compared with $9.7 billion in October.

India's trade deficit in August had widened to a 23-month high of $13.06 billion and Khullar had said the deficit could touch $135 billion in the current fiscal year to end-March 2011, higher than his earlier forecast for $120 billion.

Asia's third-largest economy is targeting close to 15 per cent export growth in the current fiscal.

[Arjun]

Yes, indications seem to be that exports are picking up speed...also these figures are only for merchandise exports and do not include software and other services.

My guess is exports of $220 Bn odd this year. With the right kind of incentives, there is a decent possibility of merchandise exports touching $500 Bn by FY 2014.

[Suraj]

The IIP figures will force RBI and GoI to resort to other means besides rate hikes to handle inflation. Since their calculus is to keep growth rate up to feed revenue growth, they're going to be compelled to implement reforms just to keep the ball rolling.

[somnath]

Another confirmation of what I commented earlier (see below) about export rising faster than import. This is a very encouraging sign. We saw this happen in November and again in January.
Same trend over last 3 quarters
April-January Exports Growth = 29.4%
April-January Imports Growth = 17.6%

Imports are growing slower (despite rising commodity prices) - its a lag indicator of general industrial slowdown...RBI's monetary heavy arty is obviously takign some effect...

A narrowing of trade deficit is nothing new (though this is too short a data period to discern a trend, yet)...During NDA's second regime, we had Current Account surpluses for 2-3 years...Not a good strategy for an emerging economy IMO...As an economy with greater growth prospects, we ideally need to be consuming more from outside than the other way round...

At some stage, and it is quite near now, the govt will have to stop the monetary guns and roll up their sleeves to tackle the real issues on inflation...MMS would remember this very well - the way C Rangarajan's (now the chairman of his EAC!)RBI killed off growth for 4-5 years in 1995-96 in a similar attempt....

[Ambar]

After onions, apparently there is another food crisis brewing! This time it is the 'engineered shortage' of milk by diary farmers ( yes yes..the same old loving farmers who should be protected at all costs including 700m+ consumers). My sister has been forced to use milkpowder for her 2 little kids as she is too scared to use milk from private diaries that have a history of unscrupulous behavior.

[Arjun]

Not a good strategy for an emerging economy IMO...As an economy with greater growth prospects, we ideally need to be consuming more from outside than the other way round...

What makes you think that is a better strategy? China has had current account surpluses for the last decade or more, of which the last 5 years numbers have been humongous. Obviously a key reason for China's stockpile of foreign currency reserves.

India has already reached 9% or thereabouts of growth rate, and has 30%+ internal savings - while the fact that we have a deficit cannot be wished away, any reason this should be a conscious strategy?

Separate from this issue are two other related issues-

1. Trade needs to be reflective of the increasing maturity of the economy. Ergo, import commodities and export more sophisticated merchandise and services.

2. To the extent energy and other commodities need to be imported, there should be increasing security in these areas through ownership of the overseas assets producing the imports - which has obviously already started happening through outbound M&A. Would be useful to start collecting statistics on percentage of energy / commodity security achieved as a result.

[shyam]

This time it is the 'engineered shortage' of milk by diary farmers

Just curious. Milk is a quickly perishable food, especially in Indian climate. What are they trying to achieve by creating the shortage of an item that can not horded? BTW, is there a farmer cartel in India to create such a major shortage?

[Ambar]

Started in TN and has now spread to KA and KL. Probably they stopped milking their cows or throwing it away as they did with tomatoes a while back. I don't remember the last time i bought a liter of milk in India, but from what i've heard the prices are already at 20Rs/liter for the government run diary milk, and farmers are demanding another 20% hike in prices. I think the price of half and half is already over what it is in massa, and now with imminent hike in regular milk prices, it'll also be on par with 1 gallon can of tfta milk with desi incomes. Is it any wonder why we haven't been able to push up the nutrition level of poor and middleclass in India.

[shyam]

I think it is the inflation effect. Everybody will demand more money for their produce because price of everything they need is going up.

[somnath]

What makes you think that is a better strategy? China has had current account surpluses for the last decade or more, of which the last 5 years numbers have been humongous. Obviously a key reason for China's stockpile of foreign currency reserves.

India has already reached 9% or thereabouts of growth rate, and has 30%+ internal savings - while the fact that we have a deficit cannot be wished away, any reason this should be a conscious strategy?

A "developing" economy should use every dollar of resources it can to max growth...A CAD means that India has "consumed" more resources from the world than it has "given"...Our savings rates have picked up smartly, but they dont yet really touch 40% - @ an ICOR of 4, that would tbe the magic 10% growth rate number...So an extra 2-3% of savings attracted by running a CAD helps..Of course, its not a linear game - cannot run very large CADs, it will trigger an external crisis.....

there should be increasing security in these areas through ownership of the overseas assets producing the imports - which has obviously already started happening through outbound M&A

Its an absolutely foolish strategy that the chinese have gotten into...For any natural resource, "ownership" lies wth the country of the "land"....And all contractual obligations are typically worth nothing - notice Venezuela's treatment of Petrobras, or Russia's treatment of BP...the sort of prices China has paid defies economic sense, they paid "strategic prices"..But the contention is whether the counterparty will honour the terms when push comes to shove!

[Abhijeet]

Living in India is like being in some sort of weird Twilight Zone where you can see that most people are very poor, and yet as soon as you step into a store the prices are at dollar levels or higher.

Ambar: we pay about Rs.1200 per month for milk, or almost a dollar a day. The price is Rs. 14 per liter. I think this may be slightly lower than what we paid in the US, but not by much.

A quick list of some "frequently bought" things that are as expensive as in the US or even more.

- Petrol: about Rs.64 a liter ($4.80 or so per gallon)
- Electricity: about Rs. 2000 a month, and that is quite cheap by Indian standards. This is about the same as what we used to pay in the US ($50).
- Branded clothes: well known Indian brands start at $20+, international brands like Levi's are more than the dollar price
- Many types of fruits: apples are Rs. 150 per kg or about Rs.30 per apple, I remember seeing oranges in a supermarket at Rs. 40 per orange -- they may be cheaper on the street.
- Branded children's toys: a small children's tricyle last year cost us Rs. 2500. A slightly larger cycle was Rs. 6000. Apart from Funskool, the only Indian toys I can find are cheap, flimsy and often look dangerous with sharp edges and crude construction. Slightly better looking toys are Chinese made.

These are the ones that I can think of right now, but there are certainly more. These are not things that you buy every few years, but items of daily use.

I won't talk about commonly discussed items like cars, electronics etc.

I honestly wonder how most people in India are able to make ends meet when a salary of Rs. 5 lakh a year outside of "IT" would be a very good salary. The answer I think is that they just do without many things that should be essentials. What percentage of Indian children can even eat fruits like apples regularly at their current prices?

[Arjun]

A "developing" economy should use every dollar of resources it can to max growth...A CAD means that India has "consumed" more resources from the world than it has "given"...Our savings rates have picked up smartly, but they dont yet really touch 40% - @ an ICOR of 4, that would tbe the magic 10% growth rate number...So an extra 2-3% of savings attracted by running a CAD helps..Of course, its not a linear game - cannot run very large CADs, it will trigger an external crisis.....

While broadly agreeing with your thesis, if the intent is to maximize GDP growth through increasing investment rate - that would apply to commercial imports and not to consumer goods imports. Morover, trade balance is also a reflection of competitiveness of the country in the global economy. So as a conscious strategy I certainly don't think there should be any defocus on the 30%+ exports growth target for future years....Aim should be say reasonable CAD of around 2 - 3%, with consumer goods import forming a small part; and exports reflecting higher-value goods and services than imports.

Its an absolutely foolish strategy that the chinese have gotten into...For any natural resource, "ownership" lies wth the country of the "land"....And all contractual obligations are typically worth nothing - notice Venezuela's treatment of Petrobras, or Russia's treatment of BP...the sort of prices China has paid defies economic sense, they paid "strategic prices"..But the contention is whether the counterparty will honour the terms when push comes to shove!

'Energy security' conjures up a lot of things to lot of folks. What I mean is more plebeian that you might imagine and already occurring and driven by individual corporates. Corporates need to derisk against commodity and energy prices when these prices comprise a significant chunk of their input costs. As a strategy therefore, to improve the quality of their earnings - it makes sense for them to backward integrate to include the upstream / raw material part as part of their internal value chain. This often involves looking for overseas assets - all of the recent Indian acquisitions in coal, shale gas etc are reflective of this need - as I am sure is the case for Chinese firms' overseas acquisitions as well.

[Suraj]

The problem with the 'developing country must run a CAD' thesis is that it presumes the country will import what are really necessary for growth, such as capital goods. However, a significant part of our import basket comprises crude oil, and an increasing volume of finished consumer goods, which are for end-user consumption only. We also lack sufficient diversification or value addition within our export basket; we should be preventing the export of iron ore, and incentivizing manufacturing facilities tailored to exports, like car makers, or electronics goods manufacturers. Both exist already, but to a much less limited extent than what we need.

[Mort Walker]

Living in India is like being in some sort of weird Twilight Zone where you can see that most people are very poor, and yet as soon as you step into a store the prices are at dollar levels or higher.

Ambar: we pay about Rs.1200 per month for milk, or almost a dollar a day. The price is Rs. 14 per liter. I think this may be slightly lower than what we paid in the US, but not by much.

A quick list of some "frequently bought" things that are as expensive as in the US or even more.

- Petrol: about Rs.64 a liter ($4.80 or so per gallon)
- Electricity: about Rs. 2000 a month, and that is quite cheap by Indian standards. This is about the same as what we used to pay in the US ($50).
- Branded clothes: well known Indian brands start at $20+, international brands like Levi's are more than the dollar price
- Many types of fruits: apples are Rs. 150 per kg or about Rs.30 per apple, I remember seeing oranges in a supermarket at Rs. 40 per orange -- they may be cheaper on the street.
- Branded children's toys: a small children's tricyle last year cost us Rs. 2500. A slightly larger cycle was Rs. 6000. Apart from Funskool, the only Indian toys I can find are cheap, flimsy and often look dangerous with sharp edges and crude construction. Slightly better looking toys are Chinese made.

These are the ones that I can think of right now, but there are certainly more. These are not things that you buy every few years, but items of daily use.

I won't talk about commonly discussed items like cars, electronics etc.

I honestly wonder how most people in India are able to make ends meet when a salary of Rs. 5 lakh a year outside of "IT" would be a very good salary. The answer I think is that they just do without many things that should be essentials. What percentage of Indian children can even eat fruits like apples regularly at their current prices?

You bring up some interesting points about cost in India compared to the US.

- Electricity: It is expensive ranging from Rs. 3-5 KwHr ($0.07-$0.11 KwHr). In the US it is $0.09-$0.15 KwHr
- Milk: Typically sold by weight rather than volume. Price is about Rs. 20 for 16 US ounces or Rs. 160 for 1 US gallon. In the US it is under $4/gallon.
- Clothes, shoes and toys are more expensive since they are made at real prices compared to the Chicom sweatshops that supply US malls.

[somnath]

The problem with the 'developing country must run a CAD' thesis is that it presumes the country will import what are really necessary for growth, such as capital goods. However, a significant part of our import basket comprises crude oil, and an increasing volume of finished consumer goods, which are for end-user consumption only

Well, most of the increase in the non-oil import basket has been in the capital goods segment...Consumer goods of various types comprise of a fairly small proportion of the basket...Even oil I would count as an intermediate in the current stage of development - our oil intensity is anyway low...

This often involves looking for overseas assets - all of the recent Indian acquisitions in coal, shale gas etc are reflective of this need - as I am sure is the case for Chinese firms' overseas acquisitions as well.

there is an economic rationale, and there is a political one...A lot fo the assets bought by the Chinese are at "political" prices..And the insurance thereby bought isnt so clear, thats all..

[Rahul M]

Ambar, milk here is Rs 14/L after a recent rise of 1 rupee. you are probably facing a local crisis.

[somnath]

You bring up some interesting points about cost in India compared to the US.

- Electricity: It is expensive ranging from Rs. 3-5 KwHr ($0.07-$0.11 KwHr). In the US it is $0.09-$0.15 KwHr
- Milk: Typically sold by weight rather than volume. Price is about Rs. 20 for 16 US ounces or Rs. 160 for 1 US gallon. In the US it is under $4/gallon.
- Clothes, shoes and toys are more expensive since they are made at real prices compared to the Chicom sweatshops that supply US malls.

While it is a fact that prices in India have shot up, it is also a fact that salaries in general have skyrocketed...So much so that across industries, there isnt a huge amount of dollar differential in Indian and (say) A-Pac salaries..That is of course having an impact on prices as well..I remember when I graduated (many many moons back ), a 5-6 lac rupee base salary (and 7-8 lac total) was pretty de rigeur for an MT in most organisations..these days, even some summer trainees get paid that much

using the "MAc index", a Macchicken in India today costs about 100 bucks (?), or about 2.25 dollars..In Singapore (and M'sia and HK), it costs around 3-4 dollars...So India still has ~40-50% cost differential over A-Pac...But it is diminishing fast...

[Ambar]

Ambar, milk here is Rs 14/L after a recent rise of 1 rupee. you are probably facing a local crisis.

Rahulji, there's a 'engineered shortage' across southern states barring AP. The most serious victims seems to be end consumers in TN and KL.

http://www.thehindu.com/todays-paper/tp ... 202031.ece
http://www.deccanchronicle.com/chennai/ ... -falls-571

Toned milk sells for around 24Rs in KA and i think with the farmers demands it is set to go up further. I pity nursing mothers and young kids of non-affluent parents who now have to make do with milkpowder or milk from private diaries that have a long history of supplying chemical tainted milk. All the rosy economic indicators are meaningless to most people from whom buying a fruit/meat/vegetables is near luxury. Add to this apathy and rampant corruption at micro level and an infrastructure that has far lagged behind the expansion of population. We have a long long way to go before individuals can claim ease and standard of life anywhere close to the richest western nations.

[Ambar]

While it is a fact that prices in India have shot up, it is also a fact that salaries in general have skyrocketed...So much so that across industries, there isnt a huge amount of dollar differential in Indian and (say) A-Pac salaries..That is of course having an impact on prices as well..I remember when I graduated (many many moons back ), a 5-6 lac rupee base salary (and 7-8 lac total) was pretty de rigeur for an MT in most organisations..these days, even some summer trainees get paid that much

using the "MAc index", a Macchicken in India today costs about 100 bucks (?), or about 2.25 dollars..In Singapore (and M'sia and HK), it costs around 3-4 dollars...So India still has ~40-50% cost differential over A-Pac...But it is diminishing fast...

Somnathji, although salaries in both service and manufacturing sector have shot up dramatically ( and some say too fast too soon), a good portion of our population still lives on meager paychecks. A grade 3 clerical officer in state government office makes less than 7000Rs/month. Most school teachers in small private/government schools make around the same. Although i disagree with WB report that 80% of Indians live on less than 2$/day, even if we increase this figure 500% , it still would be 1/12th of the median per-capita income in most western european nations.

As for Mc Index, maybe you've been living in Singapore for a bit too long now. Where as McD is associated with carb and fat heavy food-supplier to the poorest in US, it is still a luxury for most in Desh.Atleast where we stand today, it is plain wrong to justify tfta prices on the basis of rapid increase in salaries.

[somnath]

Ambarji,

I am not being flippant in this by bringing in Mac...

But it is a fact that a large part of the price rise is a function of supply side bottlenecks, in other words, a lot more people asking for stuff they didnt earlier...A lot more people asking for milk, and in more quantities..Ditto for meat, sugar and all superior goods...And even the "poorest of the poor" are better off and consuming more at the margin, hence the increase in prices of giffen goods!

Somehow we have reached a kind of tipping point for India, and the entire ecosystem needs to adjust to such a high pace of growth..We had a similar (albeit smaller) issue in 1996, when w suddenly had three straight years of massive groth (7%+), and the industrial/financial capacities got stretched out...We learnt, too painfully, but we did..And the next phase (2003 onwards) was managed better...The current phase is not just of industrial/financial, but of consumer capacities...Suddenly, there isnt enough flex in the policy as well as in the infrastructure to deal with never-before levels of consumer demand, and demand for everything - food to people...

We should get through this as well, a they say: "kuch baat hai ham mein ki hasti mit-ti nahin hamaari, sadiyon raha hai dushman daure zamaan hamara"!

[PrasadZ]

But it is a fact that a large part of the price rise is a function of supply side bottlenecks, in other words, a lot more people asking for stuff they didnt earlier...A lot more people asking for milk, and in more quantities..Ditto for meat, sugar and all superior goods...And even the "poorest of the poor" are better off and consuming more at the margin, hence the increase in prices of giffen goods!

Can the entry of higher priced goods into India cause perceived inflation?
I see a lot of NZ and US farm produce that was available only to a miniscule expat/'foreign return' fraction of the crowd earlier. Their availability pushes up average consumption values but does not, necessarily, imply that home grown produce is less accessible than earlier. Prices of himachal apples would keep track of demand and supply but the availability of NZ apples that is increasingly affordable for the middle class, could, still, cause a rise in reported inflation.
I guess its most observable in the case of finished consumer goods like cars and electronics -Maruti is replaced by a little higher priced but, arguably much better, Honda that increases average consumption values for cars. Some of the rise may be inflation but some is the inevitable effect of globalisation where a global middle class lifestyle is made available within the country.

[Mort Walker]

Ambar, milk here is Rs 14/L after a recent rise of 1 rupee. you are probably facing a local crisis.

That still seems like a very good price compared to the prices in central and north India. In these areas, at least the areas that are urbanized, most middle class people buy milk in 500g, or larger weight, packets containing liquid milk. This was done through Operation Flood or the White Revolution to make milk available to all and affordable. If you get milk from good dairies such as Mother Dairy or Amul, then prices are easily Rs. 35+ per liter for full full cream milk which is about 5-6% milk fat. Smaller packets are more expensive. With frequent electricity outages, many middle class families will buy milk in smaller (500g) packets, even though it cost more, so they can store it easier in their fridges and not all of it will spoil at once.

Perhaps the irate TN dairy farmers should sell their milk up north, but the poor transportation infrastructure is a bottle neck. In the US milk tankers, similar to petrol (gasoline) tankers, have a range of 200 miles before spoilage takes place.
The biggest irony about expensive milk is that India is the largest producer of milk (cow and buffalo) in the world!

[Mort Walker]

But it is a fact that a large part of the price rise is a function of supply side bottlenecks, in other words, a lot more people asking for stuff they didnt earlier...A lot more people asking for milk, and in more quantities..Ditto for meat, sugar and all superior goods...And even the "poorest of the poor" are better off and consuming more at the margin, hence the increase in prices of giffen goods!

This is speculation at best. Per capita consumption of basic food items, outside of wheat, hasn't increased much. What is more disturbing is that per capita protein, fresh vegetables & fruit consumption has not increased either and in fact has declined.

[Abhijeet]

Prices of himachal apples would keep track of demand and supply but the availability of NZ apples that is increasingly affordable for the middle class, could, still, cause a rise in reported inflation.

Specifically for apples, Himachal apples are Rs. 150 per kg at the store we shop at. Washington apples are Rs. 135 per kg. So this theory doesn't hold for apples.

And even for most other things, people would gladly buy the cheapest available variety, if it was available. For many things there simply isn't a cheap option. Indians are certainly not rich enough to pass by cheap options in order to buy more expensive imported items.

[Mort Walker]

Apples are expensive in India since they grow in limited locations. I would probably use mangoes, bananas, or another fruit for price rise example; as these grow in more parts of India.
Apples at Rs. 135/kg = $1.36 pound. In the US Apples sell for $1/pound or less.

[Abhijeet]

While it is a fact that prices in India have shot up, it is also a fact that salaries in general have skyrocketed...So much so that across industries, there isnt a huge amount of dollar differential in Indian and (say) A-Pac salaries..

This is simply not true. I see this repeated so many times on BR and it completely ignores ground realities. You are taking a completely unrepresentative sample of a minuscule number of software engineers/"IT people", and (possibly in your case) investment bankers, to arrive at this conclusion.

The IT industry employs something on the order of 1 million people in India. Investment banking and other high-flying industries employ even less. For these elite groups of people, yes, the salary differentials with other countries have gone down -- although it's still typically 50-60% of what a developed country salary for the same position would be.

For most other jobs, salaries have gone up, no doubt, but even today they are a small fraction of salaries in other countries. For teachers, or drivers, or manufacturing workers, or retail employees -- there is no doubt that they are better off than before. But a salary of Rs. 2 lakh a year for them would be more than what they are earning right now. There is a huge salary differential in the case of occupations outside a very small niche. And salary increases of 10% a year look decidedly unimpressive when inflation is raging along at 15% a year.

So no -- prices in India have not gone up because people have suddenly become rich. They are squarely the result of inadequate infrastructure, supply constraints, and an apathetic government.

[Virupaksha]

I dont know which world some people live in,
the per capita income of India is around 40k, and this includes the distortions which ambanis, premjis produce.

That comes out to around 3500 per month. That is the average, which means roughly 50% (I know that it is mean, not median) earn less than that.

http://www.rediff.com/money/2009/feb/09 ... -38084.htm

no for the actual mango man in India, inflation is a big big killer. These people are not going for "superior" products.

http://economictimes.indiatimes.com/new ... 446136.cms
also read the pci at constant prices.

[somnath]

This is speculation at best. Per capita consumption of basic food items, outside of wheat, hasn't increased much. What is more disturbing is that per capita protein, fresh vegetables & fruit consumption has not increased either and in fact has declined.

You are maybe referring to NSSO numbers...These are hugely problematic, and recognised by scholars on both sides of the divide...In a nutshell, while per capita calorie intake is static to declingin, per capita fat has been increasing..Here is a study from the "other" side of the divide..

http://www.jsk.gov.in/epw_article.pdf

But check out actual industry-wide numbers - meat, milk, fish, egg, sugar - you will see a distinct improvement in per cpaita numbers across the board...And with our huge (population) base, even a small increase in per capita demand causes a surge in production volumes required...

Abhijeetji, the sort of goods whose prices have skyrocketed are the "superior" ones, consumed by the relatively well-off sections, the type that has benefited from the boom...Fruits, meat, branded apparel, cars, petrol are top-end consumption items...And prices have gone up partly because there are more people who can afford these things...Look at NCAER data on household asset ownership patterns - something like 25% of HHs defined as "poor" by the Arjun Sengupta report own two-wheelers! More own TV sets!

There is a pattern to this...In indutries where reform has been "maxed", you dont see price pressures of the same sort - telecom, consumer electronics, automobiles are arguably sectors where price pressures have been brought DOWN...the issue is with food prices, and this is the area with the maximum reform deficit - causing supply side bottlenecks...Not entirely coincidental, is it?

[somnath]

no for the actual mango man in India, inflation is a big big killer. These people are not going for "superior" products.

http://economictimes.indiatimes.com/new ... 446136.cms
also read the pci at constant prices.

There is little sense doing PCI at constant prices, as prices are not "constant"! Which is why the dollar values of GDP are calulcated using nominal rupee numbers (interest parity principle)...

And taking the nominal rupee numbers, PCI of 54k means the avearge income of each individual..Now, that includes working people, children, older folks (no working) and women (many of whom might not be working)...Assuming a typical "aam aadmi" household of 4 (hum do hamare do), that translates to a per capita household income of 2.25 lacs per annum..the number is probably a bit more as Indian HHs are a bit larger (NCAER has some estimations, I forget)...

This number again is skewed - the same numbers for urban centres (that drive a lot of the consumption on "superior" goods)would be higher...

2.25 lacs - ~5000 dollars - ~ 15000 dollars in PPP terms - its not a small number, especially if you think that this number has more than doubled in the last 7-8 years - at the margin its a huge supply side shock...

[Virupaksha]

That 54k number is hawabaazi, It is supposed to be that much in 2011. Basically crystal gazing.

In 2010, they estimated it to be 45k.
Atleast 50 percent earned less than that, (it is a mean, not median).

Good show of building stat-e-stiks and handwaving of converting pci to per-family income and then showing those figures as good.

and I said "also read" as you have decided not to read actually what I wrote

[Abhijeet]

There is a pattern to this...In indutries where reform has been "maxed", you dont see price pressures of the same sort - telecom, consumer electronics, automobiles are arguably sectors where price pressures have been brought DOWN...the issue is with food prices, and this is the area with the maximum reform deficit - causing supply side bottlenecks...Not entirely coincidental, is it?

I agree with this, which is what I said -- prices are going up due to incompetent governance (no reforms), rather than because salaries have caught up to SE Asian levels.

[somnath]

That 54k number is hawabaazi, It is supposed to be that much in 2011. Basically crystal gazing.

Raviji, please read wht you post - 54k is the expected PCI for the fiscal year 2010-11, ie, the year that ends Mar 2011..Those numbers (or Quick Estimtaes as they are called) are already out - and they used for the Economic Survey and union Budget....No hawaabaazi - if anything, the actual numbers when they come out next year will be higher (going by past trends)...

[somnath]

I agree with this, which is what I said -- prices are going up due to incompetent governance (no reforms), rather than because salaries have caught up to SE Asian levels.

That too is a reason, and not a small one at that...If you talk to anyone in "industry", you would find what kind of shortage of skilled labour (not IIT/IIM types ) they face - plumbes, electricians, welders..

In 2004, you could get a driver in Mumbai for 4000 bucks a month..Today the going rate is 8-10k!

[Virupaksha]

That 54k number is hawabaazi, It is supposed to be that much in 2011. Basically crystal gazing.

Raviji, please read wht you post - 54k is the expected PCI for the fiscal year 2010-11, ie, the year that ends Mar 2011..Those numbers (or Quick Estimtaes as they are called) are already out - and they used for the Economic Survey and union Budget....No hawaabaazi - if anything, the actual numbers when they come out next year will be higher (going by past trends)...

yes sir, mar 2011 has already come and gone.

I am afraid I might be rip van winkle, as I had slept in feb 14 2011, may I know what day is today??

Every year we are projected to decrease our fiscal deficit, increase our exports by 50% and to be corruption free. When the actual data is released, then I will agree to the data. Until then, mmmmm those rosy predictions .......

By the way in their rosy predictions, they have estimated 12% inflation.