Dream team delivers fiscal nightmare: inflation at 13 year high

[Guest dada_rocks]

http://www.covert.co.in/160608/yashwant.htm DREAM TEAM DELIVERS A fiscal NIGHTMARE Speaking in Rajya Sabha on 19 July 2004 on the first budget of the UPA government presented by P. Chidambaram to Parliament on 8 July 2004, I had warned the government in these words: “I have concerns, I have worries. My biggest worry, Sir, is on the inflation front. There are proposals in this budget which are inflationary in nature. We know that inflation is showing a rising trend today ... when we (NDA) had gone for a softer interest rate regime, it was based on a very low rate of inflation. Now with your inflation crossing 6% already and rising, you cannot have 6% or 5% deposit rate in the banks and a rate of inflation which is also 6%... A low, softer interest rate regime can operate only in an environment of low inflation; it cannot operate in an environment of high inflation.†The UPA government cannot, therefore, have the comfort of claiming that they were not warned. In fact, I was not the only one who warned them, there were others. I am making this point because while many of us have rushed to applaud the growth rate of our economy in the recent years, very few have paused to find out what had made this growth rate possible. The foundations for this growth were laid during the NDA regime because we consistently kept reducing the administered interest rates and between 1998 and 2004, we brought it down from 14.5% to 8%. High inflation and high interest rates were the chronic problems of the Indian economy since independence. Together they formed a vicious cycle and imposed an unacceptable burden on the people and the economy. Tackling inflation and softening interest rates, therefore, became a major plank of our policy during the NDA regime. My concern at rising inflation in July 2004 was entirely justified. It is even more justified today when inflation is hovering around 10%. The benign impact of a softer interest rate regime was brought dramatically home to me one day after I had moved from the Ministry of Finance to the Ministry of External Affairs. I was on an Air India flight for a visit abroad. There were a couple of people from the corporate world who recognised me and came to talk to me. One of them asked me what I would consider to be my most important contribution as Finance Minister. I told him that bringing inflation down to the level of developed economies and a drastic reduction in administered interest rates was perhaps my most important contribution. At this point of time, another passenger who was listening quietly to this conversation got up from his seat, came to me, introduced himself and said that he was a living example of the benefits of a low interest rate regime. He said that he was in the plastic business, had been compelled to borrow at 22-24% from the banks which had made his business unviable. He had to close down his unit, declare it as sick and retrench the workers. The lower interest rate regime and the Corporate Debt Restructuring Scheme that I introduced enabled him to renegotiate his loan at a lower and sustainable rate of interest. He had reopened his unit, taken back all the retrenched workers and many more, his business was now flourishing and he was securing export orders. Naturally, I felt very pleased to hear his story. I nterest rates have gone up and will continue to go up to keep pace with the rate of inflation. This is a law of economics beyond the control of any government. Higher interest rates are bound to have a deleterious impact on consumption, investment, production and ultimately the economy as a whole. The sharply declining trend in industrial production is proof of this phenomenon. Economic policy today is being determined by a set of monetarist economists. They are trying to solve supply side problems through monetary measures. Various commentators have already pointed out that the Prime Minister and his team of economic managers are repeating the mistake Manmohan Singh had made as Finance Minister toward the end of his tenure in the mid-90s. Far from controlling inflation, that policy had killed growth. It took many years of hard and sustained effort to revive growth. The same is happening today. History is repeating itself with uncanny precision. Yashwant Sinha is a former Minister for Finance and External Affairs

[Lurker]

Actually in this case I am going to cut the Congress Government big time slack. True that they have not done enough to curb inflation but I would also say that this is due largely to Indians abroad(yes same old rant..I know). I have two Hyderabadis sitting right across my desk here who try to save money this that and the other way. Three people packed in a 1 bedroom house. Been like that for a year now. All the three gents have bought houses in Hyderabad upwards of 50 lakhs. Now you tell me if that will not drive cost up??? Housing is the basic foundation of any econony, if people can not afford housing they will have to move outside the town, which adds to commute, traffic and another 20% to bottomline. The inflation is being caused atleast in a large part by NRIs.

[Guest dada_rocks]

Yashwant Sinha is pointing out the big lacunae in basics of economy.. Whether it's under influence of commies or congressi's own guffaws is anyone's guess.....I say old habits die hard every now and then ol manmohan os socialist days takes over and when you have communists as co-traveller well then it happens more often than not.. Lurker the things which you are pointing out has been happening since ages even during NDA similar practices byt NRIS were in place.......... More than NRIs it's local speculators who have made merry in the property market BTW u are giving too much credit to bunch of NRIs sitting outside India.. their money is not even drop in the ocean..

[Lurker]

Lurker the things which you are pointing out has been happening since ages even during NDA similar practices byt NRIS were in place.......... More than NRIs it's local speculators who have made merry in the property market BTW u are giving too much credit to bunch of NRIs sitting outside India.. their money is not even drop in the ocean..

Of course the busting number of NRIs has propelled the property price wayyyy up high. Is it a mere coincidence that the highest property rate in the country is often in the cities with most NRI population?? Local speculators have obviously made merry. This will take me on another rant as to how these middlemen have r@ped India. From personal experience I can tell you how I loathed the Property dalaals in Mumbai, overwhelming number of who are Gujjus by the way. If you rent a house for 5,000 a month be prepared to pay "pagadi" of about 60,000 coupled with 10,000 as "brokerage" fee. The pagadi, or security, is refundable but brokerage fee is obviously not. Can you imagine of any city, say New York where you pay 12months rent as f@king pagadi??? 2 months rent as brokerage fee? Hate those ba@trad@

[Guest dada_rocks]

Same is the case in bangalore too.....its demand supply at work.. I am fine with that but when these middleme start making money over speculative price rise then it becomes a problem...... IN delhi just six months back it was common practice for these mofos to get all the apartments booked in their names and even before brick-breaking sell it to the regular customer at 50% hike....... Anyway article points out the lacunae in basics of economics breoing followed itself .. these lilttle addendum of NRIs and speculators come later first you will have to get the basics right....

[kumble_rocks]

Now with your inflation crossing 6% already and rising, you cannot have 6% or 5% deposit rate in the banks and a rate of inflation which is also 6%... A low, softer interest rate regime can operate only in an environment of low inflation; it cannot operate in an environment of high inflation.”

While I am no economist , but this line got my attention . Speaking from USA 's perspective , just the other day FED chairman Bernake decided not to raise the interest rate . He has been operating on the same principle as what Chidambaram is doing now ... In the case of USA , the interest has been hovering around 2 to 2.5 percent for long time now . The inflation rate is at 5 % . Now in the case of India , granted the inflation rate has gone way up , on the upwards of 11 % , but we should not discount the fact that rising prices of food, oil and commodity price rises worldwide has a damning effect in our inflation After all , inflation has been affected by a reduction in government fuel subsidies, which have lifted gasoline prices by an average . Me thinks as China grows , so will India's inflation simply because it will put a pressure on food and commodity price , notwithstanding the oil part.

[Ram]

There is no way ANY Indian govt. could have curtailed this inflation. When you have uncontrolled economic growth and sky-high fuel prices, there's very little a govt. can do about it.

[Guest dada_rocks]

Things would not have come to this stinking passe if not for the inflationary policies.... Nobody claims it wud have been totally immune............

[kumble_rocks]

Things would not have come to this stinking passe if not for the inflationary policies.... Nobody claims it wud have been totally immune............

What policies in particular are you talking about ... The government did try to get the inflation down to around 6 % ... Somethings are beyond their control ..

[Ram]

What policies in particular are you talking about ... The government did try to get the inflation down to around 6 % ... Somethings are beyond their control ..

Precisely. I request DR to list atleast 3 measures that he thinks the UPA govt. should have taken, to control this inflation.

[Guest dada_rocks]

Aren't the answer in the article itself or do you love to post without going through OP..

[kumble_rocks]

Aren't the answer in the article itself or do you love to post without going through OP..

What kind of answer is that ? I did read the OP , probably I am dense , so I the repeat question - What policies in particular are you talking about ?

[Guest dada_rocks]

Read it again, if u didn;t get it chances are u won;t get it even I tell you.. Or there is a chance u know it but like a denial based slug-gest .. Too bad I am nto in mood right now .Will indulge you some other time .......

[kumble_rocks]

Read it again' date=' if u didn;t get it chances are u won;t get it even I tell you.. Or there is a chance u know it but like a denial based slug-gest .. Too bad I am nto in mood right now .Will indulge you some other time .......[/quote'] I am serious ! I just don't get it . I have already mentioned in my post earlier about the fact that rising fuel, food and commodities market worldwide has had adverse effect on the economy. Now , if you want to turn every discussion into slugfest , then that is your prerogative. I simply interested in facts. The OP is too vague..does not talk about which policies have caused inflationary problems , keeping into account food, fuel and commodity prices hike worldwide.

[Desi Cartman]

Read this blog .. it was written in Feb 08 ... India, Real Estate and Some Numbers Some facts in the blog

The numbers when it comes to real-estate just don't add up though. Real-estate in India is incredibly expensive and not just by Indian standards (with per capita GDP of US$ 700 per annum). Here are some numbers: * Condos in New Delhi, India: 2-bedroom, 1000 sq ft apartment for $200,000. [$200 per sq ft] (Source: 99acres.com) * Condos in Chicago, USA: 2-bedroom, 1000 sq ft apartment for $400,000 [$400 per sq ft] (Source: Google Housing) Now, remember that the median income in Chicago is 50 times more than that of New Delhi. Why Chicago? Because New Delhi can grow in all 4 directions much like Vegas can (and Chicago can in 2 directions) as compared to Manhattan and San Francisco that are geographically restricted. Next, look at agricultural land prices. * Agricultural land in Faridabad, Haryana (adjacent to New Delhi much like New Jersey is to New York): $250,000 per acre (source: 99acres.com) * Agricultural land in New Jersey: $12,000 per acre (source: USDA, and for comparison its $6,000 per acre in California and $8,000 per acre in Florida)

[Guest dada_rocks]

http://outlookindia.com/full.asp?fodname=20080811&fname=Col+Prem+Shankar+Jha+%28F%29&sid=1 Cut the nose to cure cold.. Excerpt: Squeezing domestic demand is no antidote for global shortages of supply.For instance, there is absolutely nothing anyone can do about the soaring international price of crude oil. But in both food products and manufacturing, India has literally imported global inflation by opening up the economy. The government tacitly admitted this when it stopped the export of non-basmati and then basmati rice in March. It again admitted this when it asked steel producers to curb exports. But it stopped well short of banning export of steel and other primary products, and did not even slap an export duty on them in order to limit it, preferring to rely on admonitions instead. As for rice, it shut the door on exports only after the horse had bolted. So now the government can do absolutely nothing to bring prices down. But with an election only months away, it doesn't have the courage to say this. So it is pursuing a policy that it knows will not affect inflation but may just convince people that it tried its best.

[Guest dada_rocks]

Read this blog .. it was written in Feb 08 ... India, Real Estate and Some Numbers Some facts in the blog

Yes real-estate house numbers certainly don't make sense... But as far as agricultural land is concerned Indian prices are generally higher than american for following reasons (1) India's cultivable land to population ratio (2) india's population percentage dependent on agriculture For instance in Canada 70% population is in service sector whereas in india 70% is in agriculture.. I guess it's demand supply.. I can easily buy here 20 acres of farm land in half a million dollar.. Similar land will cost eve around 4 crore close to a million dollar even in my village let alone in NCR