Indian Economy: News and Discussion (Jan 1 2010)

paramu · Post by **paramu** » 02 May 2010 07:47

The point to be noted is that the foriegn companies who supplied ink and other material to make Indian currencies supplied the same materials to Pakistan who prints and distributes fake Indian currencies.

Sanjay M · Post by **Sanjay M** » 02 May 2010 09:03

Buffett to visit India, won't rule out investment

ArmenT · Post by **ArmenT** » 02 May 2010 09:07

paramu wrote:The point to be noted is that the foriegn companies who supplied ink and other material to make Indian currencies supplied the same materials to Pakistan who prints and distributes fake Indian currencies.

Do you have any proof that these same companies also supplied the materials to Pakistan? Didn't see any mention of that in the original article.

sivabala · Post by **sivabala** » 02 May 2010 09:49

There was a news article sometime bacK that says "Indian govt has approached european govts and asked not to sell ink and currency grade paper to Pakistan". The two govts they approached were UK and Germany. I don't know what was the respective govts reply, which was not there in the original article.

svinayak · Post by **svinayak** » 02 May 2010 10:49

Sanjay M wrote:Buffett to visit India, won't rule out investment

Why so late on this.

csharma · Post by **csharma** » 02 May 2010 11:15

This is a question for Suraj and other experts.
I went to IMF latest database and found these projections for BRI for GDP at current prices till 2015.

I was a little surprised to see that they show the least amount of growth for India among the three. That does not make sense to me because of the three India is having and is expected to have the most growth. Once can expect the currency to appreciate as well.

Somehow this is not making sense to me. A while back I had looked at WB data and it was showing that India would overtake Brazil's GDP by 2011 or so.
So either IMF has the most pessimistic projection for India or there is something I am not aware of.

http://www.imf.org/external/pubs/ft/weo ... 84&pr1.y=7
Shaded cells indicate IMF staff estimates
Country Subject Descriptor Units Scale Country/Series-specific Notes 2008 2009 2010 2011 2012 2013 2014 2015
Brazil Gross domestic product, current prices U.S. dollars Billions 1,635.521 1,574.039 1,910.495 2,035.041 2,161.277 2,295.946 2,438.967 2,592.781
India Gross domestic product, current prices U.S. dollars Billions 1,206.683 1,235.975 1,367.216 1,496.514 1,643.984 1,809.346 1,991.901 2,185.199
Russia Gross domestic product, current prices U.S. dollars Billions 1,660.009 1,229.227 1,507.590 1,733.878 1,978.379 2,282.652 2,649.383 3,060.602

kittoo · Post by **kittoo** » 02 May 2010 12:05

^I have never understood data from WB etc. Wasnt India supposed to be ahead of Brazil?
They anyway keep changing the predictions every few weeks, especially about growth rates. Dont look much into them.

rohiths · Post by **rohiths** » 02 May 2010 12:51

sivabala wrote:There was a news article sometime bacK that says "Indian govt has approached european govts and asked not to sell ink and currency grade paper to Pakistan". The two govts they approached were UK and Germany. I don't know what was the respective govts reply, which was not there in the original article.

There was a link posted in BRF some moons ago. I am unable to find it.
Basically UKstan gave the 500 rupee templates to Pakistan and that is the origin of the fake notes.

Mahendra · Post by **Mahendra** » 02 May 2010 14:42

Not an economics expert but the link posted by Sharmaji seems to suggest that India and Russia will nearly double their GDP( b/w 2008-2015)
Both Russia and Brazil show growth spurts in different periods whereas India shows steady growth

Russia is projected to increase its GDP by roughly 800 billion $ b/w 2013-2015, does this have anything to do with projected increase in oil prices/ US conflict with Iran

Katare · Post by **Katare** » 02 May 2010 21:29

You need to take in account the inflation, real growth rate and exchange rate appreciations beside any other one time accounting adjustments like base year change.

For instance if Russian economy grows 10% with inflation of 10% and Ruble appreciates 5% against $ in that year than total GDP gain for Russian economy in that year would be 25% when measured in dollars. But real gain is only 10% rest of it is only accounting gains with little direct impact on relative size of economy.

Similarly Chinese Premier announced in ~2005 that Chinese economic output would quadrupled by 2020, in current dollars Chinese GDP has already quadrupled in 2010 but in real economic output in “2005 dollars” it'll still happen close to 2020.

putnanja · Post by **putnanja** » 04 May 2010 01:45

Sebi cracks disclosure whip on credit rating agencies

The Securities and Exchange Board of India (Sebi) today asked credit rating agencies to disclose the fees they charge companies for assessing their debt profile and the default rate on their previous ratings.
...
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In a circular issued today, the market regulator also asked the rating agencies to recognise default at the first instance of delay in paying interest or principal on the rated debt instrument.

In addition, the agencies have been asked to ensure their analysts do not participate in any marketing and business development, including negotiations of fees with the issuer whose securities they are rating. Also, employees involved in the rating process and their dependents should not own shares of the issuer, Sebi said.

The new guidelines ask the credit rating agencies to maintain records of the important factors underlying the credit rating and a summary of discussions with all the stakeholders involved, as well as decisions of the rating committee, including voting details and notes of dissent.
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Crisil, Fitch, Icra and Care are the four main credit rating agencies operating in India. Based on the creditworthiness of companies, these agencies assign ratings such as AAA, AA, BBB. Investors, banks and other institutions use these ratings while making investment decisions.
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...

abhischekcc · Post by **abhischekcc** » 04 May 2010 21:23

Acharya wrote:
Sanjay M wrote:Buffett to visit India, won't rule out investment
Why so late on this.

Buffett likes to bet on horses with a track record of winning, who are currently suffering a low patch.

ramana · Post by **ramana** » 04 May 2010 22:04

Sanjay M wrote:Buffett to visit India, won't rule out investment

Expect more of this as the US CRE collapses.

Rupesh · Post by **Rupesh** » 04 May 2010 22:07

Govt wants RIL to cut gas output

In a surprise development, the government wants Reliance Industries to cut gas output from its eastern offshore KG-D6 fields so that imported fuel stocks can be sold in the country.

By asking Reliance to cut output, the ministry hopes it can push the imported gas to customers using KG-D6 gas.
Industry observers expressed surprise at the decision saying imported expensive gas was being prioritised over cheaper domestic gas. "The priority should be to use cheaper fuel first and use expensive gas later," an official said.
Petronet's imports from Qatar cost USD 5.42 per million British thermal unit (ex-Dahej), while KG-D6 gas is priced at USD 4.20 per mmBtu.
the April 30 meeting in the ministry also decided to set up "a coordination mechanism" between the domestic producers and Petronet so that commitment to buy overseas LNG is met.
Power and fertiliser plants prefer using KG-D6 gas as feedstock as it is not only cheaper but Reliance offers better commercial terms.
Sources said just before Reliance was to begin gas output from KG-D6 a year ago, the Ministry made key power and fertiliser plants to enter into a 10-year agreement to buy expensive LNG from Petronet on a take-or-pay commitment (take gas or pay for it).

Paul · Post by **Paul** » 04 May 2010 23:16

Found this while googling on our own Palakkad's Achutanan:

Achuthan, while describing the factors that had led to the liberalization of the Indian economy since the early 1990s, said, “It all started with the Gulf War I, when many immigrants to the Middle East had to return to India, nearly emptying the cash-flow and the foreign reserves of India. It was from here, the seeds of economic liberalization were sown,” the fruits of which the Indian economy is reaping in these years, he said.

http://www.theindianstar.com/index.php?uan=2963

Suraj · Post by **Suraj** » 04 May 2010 23:38

Mark your calendars: Q4 and full 2009-10 fiscal year GDP growth data is due May 31.
India's economy probably expanded Q4 at fastest pace since 2007

India’s economy probably expanded at the fastest pace in more than two years last quarter, adding to evidence of growing consumer demand.

Gross domestic product is estimated to have grown 8.6 percent last quarter, the most since December 2007, Kaushik Basu, the chief economic adviser in the finance ministry, told a business conference in New Delhi today. India will unveil the growth data on May 31.

The estimate justifies central bank Governor Duvvuri Subbarao’s move to raise interest rates twice since mid-March to contain inflation. Economists, including RPG Foundation’s D. H. Pai Panandiker, say monetary policy is still loose and expect Subbarao to add to the rate increases.

“Monetary policy continues to be very easy and is not in sync with the current level of economic activity,” said Panandiker, president of the New Delhi-based economic research group. “Inflation is going to be the biggest challenge for policy makers.”

The benchmark wholesale-price inflation rate rose to 9.9 percent in March.

“Inflation is another source of worry,” Basu said. “The rise in food inflation is now spreading to other sectors of the economy and the rise in global prices of iron, steel and crude oil may add to inflation.”

csharma · Post by **csharma** » 07 May 2010 12:40

Indian merchandise exports are up 50% in march. Close to ~20 billion dollars.

Suraj · Post by **Suraj** » 08 May 2010 02:20

Short and long term GoI income streams:
Govt earns Rs.48000 cr ($10.5 billion) by 24th day of 3G auction

According to a senior official in the Department of Telecommunications, “The revenues from 3G auction alone will be over Rs 50,000 crore. The auction is likely to be completed in a day or two, as the demand in some circles is still high.” The Pan-India bid for 3G licence was Rs 12,068.94 crore today, up 244.82 per cent from the base price of Rs 3,500 crore.

The end of the auction that started on April 9 would set the stage for broadband wireless access (BWA) spectrum auction after a gap of two days. It is likely to generate additional revenues of Rs 10,000-15,000 crore.

The total revenues from both 3G and BWA is estimated to be in the range of Rs 60,000-65,000 crore, from a fixed budgeted target of Rs 35,000 crore.

GoI revenue of Rs.84000cr ($18.5 billion) from Reliance KG-D6 assured

The Supreme Court judgment upholding the supremacy of the government’s production sharing contract (PSC) in the Reliance Industries (RIL)-Reliance Natural Resources Ltd (RNRL) case assures continued gas supply to consumers in the power and fertiliser sectors. It also means the government’s projected revenue of Rs 84,000 crore from the entire life cycle of the RIL-operated KG-D6 field will remain unaffected.

More on the export data csharma posted:
India March exports rise at fastest pace in 6 years

Overseas shipments rose 54 percent to $19.9 billion, Commerce and Industry Minister Anand Sharma said in New Delhi today, after a 34.8 percent gain in February. Exports are rebounding after an average 16.5 percent drop in 2009 and expanded at the fastest pace since March 2004.

The gains in merchandise exports, which make up about 20 percent of India’s $1.2 trillion economy, comes even as the Indian rupee strengthened for a fourth month in April, the longest winning streak in three years. Overseas sales of Bajaj Auto Ltd. India’s second-largest motorcycle maker, more than doubled in April.

“Exports are getting a boost due to the strong global economic recovery,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Indian unit of Standard & Poor’s. “The big jump in exports growth can also be attributed to the fact that exports grew at a much slower pace in the same month last year.” Sales in March last year were $12.9 billion.

Katare · Post by **Katare** » 08 May 2010 03:24

Compares credit ratings of India and China with PIGS.

T N Ninan: And Pigs do fly

Theo_Fidel · Post by **Theo_Fidel** » 09 May 2010 09:18

I don't understand the venom the foreign media, esp. the UK based ones, have for India or other developing countries.
The naked self interest arguments are almost shameless.

http://www.guardian.co.uk/business/2010 ... -ravi-ruia

Billions pour in for India's insulated superclass

The subcontinent's elite have a huge market all to themselves – and a vast gap is opening up between rich and poor

Mukesh's younger brother Anil, owner of telecoms giant Reliance Communications, is worth £9bn, ranking him 36th worldwide, just beneath George Soros, but ahead of Microsoft co-founder Paul Allen. Further down the list are such luminaries as Sunil Bharti Mittal, founder of Bharti Airtel, India's largest (and the world's third-biggest) mobile telecoms firm, and Kumar Birla, a commodities tycoon worth £5.2bn. Between them, these tycoons and a few dozen others make up the elite that owns India

This is not true at all. These companies do not own India. Why is a class warfare being manufactured I wonder.

Seen up close, this world of total financial extremes is disturbing. The Ruias, cocooned in their personal tower block soaring over Mumbai's majestic racecourse, can enjoy panoramic views of the city; even the air they breathe is fragrant and untainted. But nearby, in a morass of slums where households live cheek by jowl, I met a family sheltered under a flimsy tarpaulin against the lashing of a monsoon. The father told me they had been there "many, many years".

I actually think this is a good thing. The rich and poor must live together. It prevents the demonization of the 'other' class.

Many worry about a backlash against the extremely wealthy and their activities. In recent years, riots in areas such as West Bengal highlight the level of public anger felt at the appropriation of agricultural land for factories, real estate and shopping malls.

Where does this c**p come from. No one is jealous of these guys. Everyone is impressed by their drive and determination. Everyone wants to be like them.

A plethora of protectionist rules – many established by the political elite and reinforced by business moguls – makes it difficult if not impossible for foreign companies to do business on a serious scale in India. Lord Desai, the Gujarat-born British economist and Labour peer, highlights the difficulties facing any foreign business: "India's political elite is still very xenophobic – they still look back to colonisation and the imperial past. They don't want foreign businesses to come in, and local businessmen gain from having these obstacles put in place."

The real desire comes out here. They want their companies, say Tesco to be in charge. Not those pesky Brownies...

svinayak · Post by **svinayak** » 09 May 2010 11:02

Theo_Fidel wrote:I don't understand the venom the foreign media, esp. the UK based ones, have for India or other developing countries.
The naked self interest arguments are almost shameless.

Billions pour in for India's insulated superclass
Why is a class warfare being manufactured I wonder.

Where does this c**p come from. No one is jealous of these guys. Everyone is impressed by their drive and determination. Everyone wants to be like them. They don't want foreign businesses to come in, and local businessmen gain from having these obstacles put in place."
The real desire comes out here. They want their companies, say Tesco to be in charge. Not those pesky Brownies...

Why dont they say the same thing to PRC China. After centuries of colonial rule these guys are back to what India should have been 100-200 years ago.

These articles are meant to create resentment and class revolution in the future

Box India inside South asia and then keep it away from all trading blocs and keep it poor and plan for a revolution. Make sure that the neighbors are armed.
This is a textbook plan

Suraj · Post by **Suraj** » 09 May 2010 11:41

Dogs will bark as the country marches ahead.

shyam · Post by **shyam** » 09 May 2010 11:49

Theo_Fidel wrote:I don't understand the venom the foreign media, esp. the UK based ones, have for India or other developing countries.
The naked self interest arguments are almost shameless.

http://www.guardian.co.uk/business/2010 ... -ravi-ruia

Billions pour in for India's insulated superclass
...
This is not true at all. These companies do not own India. Why is a class warfare being manufactured I wonder.

I wonder why it took such a long time for you to see this...

wig · Post by **wig** » 09 May 2010 21:26

it is very difficult to believe ratings awarded by rating organisations. they consider a variety of factors and thereafter allocate leverages. the rating organisations would like the users (stakeholders : perhaps) to belive that the allocations are scientific but that is not the case when the rated organisation/ country unravels.
the weightage / leverage is in actuallity based on the hunches/ opinion of the person who is doing the rating and to me always appears biased towards a particular user. the identity one can guess the identity of the beneficary of the ratings as the economy unravels.
the ratings then stand out like the proverbial sore thumb.
about now as the economy of the economies of european countries like; Portugal, Italy, Greece, Spain (PIGS) is leading to shedding of jobs and them freeloading the eurozone currency the countries are still enjoying ratings that denote a status that belies ground realities.

amit · Post by **amit** » 10 May 2010 15:07

Theo_Fidel wrote:I don't understand the venom the foreign media, esp. the UK based ones, have for India or other developing countries.
The naked self interest arguments are almost shameless.

http://www.guardian.co.uk/business/2010 ... -ravi-ruia

Billions pour in for India's insulated superclass

I think articles such as this one, just mirror the frustration of the Brits as their empire (pretensions) fade and they lapse back to be a small inconsequential island nation, which gets too much rain.

I think the angst is visible here:

The £1.2bn float got off to a shaky start, with shares tumbling 7.2% on the first day, but will propel Essar into the FTSE 100 index at its next reshuffle.

Now here you have a damn company run by the Natives marching into the fabled FTSE almost immediately after listing? How can a Brit gentleman of good upbringing tolerate that can you tell me? How can it be tolerated that the former jewel on the crown, whose looted riches made so many "noble" Brit families rich, has more billionaires? Heck, the richest "Brit" resident billionaire also proudly holds on to his Indian passport!

Added to all these insults, two names synonymous with Brit "ingenuity and economic poweresses", British Steel (Corus) and Jaguar-Land Rover were bought up by yet another native company and actually turnaround?

All this dissing the Ruias, Ambanis etc is just plain old fashioned angst and nothing more. They may love to be able to do it if they could, but the Brits don't have the wherewithal to start a class struggle in India.

Heck all they can do is have "Oh-I-Love-a- Banana" Millibund make some occasion pompous statement on Kashmir, which our babus just simply ignore.

As Suraj said dogs will bark (from a safe distance) when an elephant starts to move.

No need to read some sinister manipulation games here. I'm sure pretty sure soon some upstart Indian media group will take over Guardian and put it out of its misery.

bhavani · Post by **bhavani** » 10 May 2010 20:20

http://www.guardian.co.uk/business/2010 ... -ravi-ruia

Billions pour in for India's insulated superclass

This article shows nothing but frustration of the Ukstanis. He talks that foregin companies cant do business in India. He does not say in what way they are better.

I think our reply should be to start buying into european businesses. If an Indian conglomerate buys into TESCO, that should be a slap on thier faces. Infact there is nothing left that these gore pakis can call british. British music is pretty much dead. London has no britishers in it, Every company is owned by Asians or Khan's businessmen. I think only bbc is the final Ukstani company.

FInally let the dogs bark.

But one thing i think needs to be done is these western rating agencies need to be killed. Anyway guys what does it take to create an Rating agency In India and backed up by prominent Asian financial agencies

Singha · Post by **Singha** » 10 May 2010 20:39

what exactly in terms of consumer products, industrial products , commodities or process/consultancy/knowledge do the UK have to offer us that is superior or cheaper than available from a dozen other nations? overprices marks and spencer lingerie ? scotch whisky ? beef ? tailored suit technology ? salmon ?

other than ripping customers and skimming money from deals via all sorts of financial innovation, what is the core competence of the british ? even in this they are junior brother to the brightest and best sitting in goldman sachs and merely viewed as a beachead in europe to rob HNI european clients by the american pov.

Katare · Post by **Katare** » 10 May 2010 22:32

Singha wrote:what exactly in terms of consumer products, industrial products , commodities or process/consultancy/knowledge do the UK have to offer us that is superior or cheaper than available from a dozen other nations? overprices marks and spencer lingerie ? scotch whisky ? beef ? tailored suit technology ? salmon ?

other than ripping customers and skimming money from deals via all sorts of financial innovation, what is the core competence of the british ? even in this they are junior brother to the brightest and best sitting in goldman sachs and merely viewed as a beachead in europe to rob HNI european clients by the american pov.

Prem · Post by **Prem** » 10 May 2010 23:14

Are Perfidious ones sensing the advent of Britindia Company ? By 2030 almost all of their major economic hubs be under Indian control with Paki supervising the daily routine of native workers and yea,make them be the Clown of Indian Empire.

amit · Post by **amit** » 11 May 2010 06:24

I really enjoyed reading the past few posts on the Guardian "fart" article. Sometimes we tend to give these buggers more importance than is due. Oh sure if they could they would try to invent some "class struggle" or such rubbish through newspaper articles. But hey who reads this trash in India's heartland?

Suraj · Post by **Suraj** » 12 May 2010 11:26

Industrial output up 13.5% in March

The 13.5 per cent growth was the sixth straight double-digit monthly expansion, driven largely by robust manufacturing output. Analysts do not expect the central bank to tighten policy based on these numbers.

They say the Reserve Bank of India (RBI) will wait for cues on inflationary pressures and demand in the economy and the overall global economic situation before tightening policy further.

The yield on India's 10-year bond yield eased two basis points after the data release.

The latest data in Asia's third-largest economy compares with the median forecast in a Reuters poll for a rise of 15 percent and February's figure of 15.1 per cent.

Economists see the pace of growth tapering off as the low-base effect wears off and the impact of rate hikes and a partial withdrawal of stimulus kicks in.

Prem · Post by **Prem** » 12 May 2010 22:20

http://www.pcworld.com/article/196125/i ... _jail.html
In India, a BPO Center Coming up in a Jail
John Ribeiro , IDG News

The Cherlapally Central Jail in Andhra Pradesh state in south India is setting up a business process outsourcing (BPO) center, with the aim of giving the prisoners skills that will help them better integrate into society after their release, a senior police officer said on Wednesday.The prisoners will initially work on data entry and processing, and at a later date may be introduced to call center work, C.N. Gopinatha Reddy, Andhra Pradesh's director general of prisons, said in an interview.Radiant Info Systems, an IT services and BPO company in Bangalore, is setting up the jail BPO center.
Radiant officials originally met with Reddy to sell him a jail management system and other software. But Reddy wanted to know how IT could be used to provide an occupation to the inmates, said C. Narayanacharyulu, director of Radiant."That is when we thought of setting up a BPO inside the jail," he added.The opportunity for Radiant is that the jail has more than 200 prisoners who have completed school, while some of them have also have graduated from university, Narayanacharyulu said. "We found that with about two to three months training, we could use them for back-end processing work," he added.

Pulikeshi · Post by **Pulikeshi** » 12 May 2010 22:34

Theo_Fidel wrote:I don't understand the venom the foreign media, esp. the UK based ones, have for India or other developing countries.
The naked self interest arguments are almost shameless.

http://www.guardian.co.uk/business/2010 ... -ravi-ruia

Billions pour in for India's insulated superclass

Here is a letter to the Gaurdian - please reuse and send -

Lets do a quick compare of the Genie coefficient:

United Kingdom 34 (2005) 36.8 (1999)
United States 45 (2007) 40.8 (1997)
India 36.8 (2004) 37.8 (1997)
China 41.5 (2007) 40 (2001)
Brazil 56.7 (2005) 60.7 (1998)
Russia 42.3 (2008) 39.9 (2001)

Notice (without taking into account population size, etc.) India in 2004 is roughly where UK was in 1999.
Perhaps this data has changed more recently for India (2010) and there is much room for improvement.
The above Genie coefficient data published data in CIA fact book (which the Author uses), India seems to hold water.The author would have arrived at more accurate conclusion if he had educated himself on the details. Rather, he chose to make subjective statements at best and irresponsible ones at worst in the article.

*Genie Coefficient: This index measures the degree of inequality in the distribution of family income in a country. If income were distributed with perfect equality, the Lorenz curve would coincide with the 45 degree line and the index would be 0; if income were distributed with perfect inequality, the Lorenz curve would coincide with the horizontal axis and the right vertical axis and the index would be 100.

tejas · Post by **tejas** » 12 May 2010 23:33

Boss, I believe it is Gini index.

Prem · Post by **Prem** » 13 May 2010 00:25

http://www.forbes.com/2010/05/11/china- ... gechannels
Intelligent Investing
India Or Bust
Richard Kang,

The fifth-largest economy in the world tells a story U.S. investors need to hear.

There has been much focus on China, but we know that the Indian economy has been hot, hence the recent monetary policy tightening by its central bank to control inflation. In addition, positive sentiment within India about their own economic situation, second to China, is extremely high, according to the Pew Global Attitudes Project. Furthermore, the Chinese economy has been so focused on exports and now on greater reliance of domestic consumption of those goods, while India can compete globally and domestically on a different front since their economy has a strong bias to services to enhance the production of goods.And what's more, India boasts the fifth-largest economy in the world, with a reported annual gross domestic product of $3.56 trillion, growing at a rate of 8.5% annually over the last five years, according to Deutsche Bank ( DB - news - people ) research (U.S. has grown U.S. 2.5% annually; U.K., 2.3%
The country runs at a fiscal deficit of 6.6% of GDP. Reserves of foreign exchange and gold are at about $287.5 billion and they have a savings rate of 35% of GDP with an investment rate of 32.1% of GDP, including a handsome chunk earmarked for infrastructure

Suraj · Post by **Suraj** » 13 May 2010 00:39

Fourth largest actually - US, China, Japan, India, then Germany. We will overtake Japan in the near future. We'd have already done so if the World Bank had not gone down with its 'cut China and India down' PPP GDP rebasement exercise three years ago.

The '5th rank' is because they're counting the EU as a single economy, which wasn't particularly meaningful before, and even less so today. Even more so, the rankings listed EU entities twice, i.e. EU at #1 rank, and then countries like Germany, France etc. separately too. Brussels Baloney on the lines of Shanghai Statistics.

Abhijeet · Post by **Abhijeet** » 13 May 2010 01:30

Have there been any recent recalculations of the PPP multiplier for India (which seems to be in the range of 3 from the GDP figure in the article above)? Food should make up a significant fraction of the consumption basket that is used to determine PPP, and with food inflation on a tear over the last year, it seems like the PPP multiplier should have come down.

I think that there is a lot of truth to the statement that PPP figures are to make poor countries feel better about themselves. It is impossible for any Indian who is not actually destitute to live a life at PPP prices, since the prices of even basic goods are far higher than PPP would indicate. So even if the economy is $3.5 trillion in PPP terms, that does not mean that Indians produce an amount of goods and services that would cost $3.5 trillion in a developed economy.

This is a thought in formation. It doesn't make sense to apply the PPP inflator to the entire GDP of a country, but only to the part of its GDP contributed by goods or services that are actually on the market at PPP prices. For example, a haircut does indeed cost far less in India than in a developed country, so the "value added" by that haircut can indeed be multiplied by 3 (or even higher) in order to arrive at an internationally comparable figure. But a refrigerator produced in India costs almost as much as one produced in the US because of our terrible infrastructure. Putting a PPP multiplier on top of the "refrigerator production" component of the GDP is misleading since the price of the final product is an international price.

A more accurate method might be to apply the PPP multiplier only to the services segment of the GDP, which by and large does consist of products sold at PPP prices. The rest of the GDP does not consist of products at PPP prices and should not be artificially inflated.

muraliravi · Post by **muraliravi** » 13 May 2010 04:13

Abhijeet wrote: This is a thought in formation. It doesn't make sense to apply the PPP inflator to the entire GDP of a country, but only to the part of its GDP contributed by goods or services that are actually on the market at PPP prices. For example, a haircut does indeed cost far less in India than in a developed country, so the "value added" by that haircut can indeed be multiplied by 3 (or even higher) in order to arrive at an internationally comparable figure. But a refrigerator produced in India costs almost as much as one produced in the US because of our terrible infrastructure. Putting a PPP multiplier on top of the "refrigerator production" component of the GDP is misleading since the price of the final product is an international price.

A more accurate method might be to apply the PPP multiplier only to the services segment of the GDP, which by and large does consist of products sold at PPP prices. The rest of the GDP does not consist of products at PPP prices and should not be artificially inflated.

I beg to differ. The number 3 holds pretty good in my opinion. Lets take the following case. What does number 3 mean in terms of dollars. For a day to day calculation basis it means that a dollar is worth 15 rupees and not the 45 based on currency exchange. Now lets see how valid is 15 (I am sure there are products which are a dollar in a the US which are 5 rupees worth in India and some which are 60 rupees). I think the average will be 15.

You mentioned Refrigerator.

Lets see, a basic refrigerator lets say 10 cu ft approx 280 lts costs around 400 USD from a nice company.

In India the same costs, 12500 bucks. So the conversion here is around 30 (still lesser than the 45)

Cars are definitely more expensive, but it is balanced by the fact that public transport is pretty affordable and the cars that people drive in India are low powered making them cheap.

Food and agro products are on the cheaper side. As i see it electronics are cheaper in the US and more expensive in India. But overall the amount balances mainly with food and even housing.

A one bedroom apt in philadelphia (15th biggest city in the US) costs 950 USD, a one bedroom apt in the 15th largest city in India certainly does not cost 14000 rupees per month for rent and here even 1:15 is beaten out.

Do each day to day item, i am pretty sure 1:15 is a nice ratio. Then add the overall expenses, a guy making 80k in the US has the same std of life as someone with 12 lakhs per annum. Again do compare similar cities, not mumbai with st. louis.

Pulikeshi · Post by **Pulikeshi** » 13 May 2010 07:33

tejas wrote:Boss, I believe it is Gini index.

Did not notice my auto-spell corrector

Chinmayanand · Post by **Chinmayanand** » 13 May 2010 13:04

India more vulnerable to capital flows: Subbarao