Friday, January 15, 2010

Indian economists are dumb - Asian Development Bank

ADB economists are practically saying that the RBI and the Indian government are the main characters in the Bollywood remake of the movie Dumb and Dumber. Who cares about wholesale inflation when citizens have to face consumer price index inflation every time they visit the store. The CPI numbers are staggering and the government is doing its best to hold interest rates low, to allow for big projects to take off at subsidized loans. They are afraid to upset the apple cart, lest they be seen as the reason for the collapse of the Indian stock market. With huge vested interests in real estate all over the country, Indian politicians are responsible for the mayhem caused to the common man whether it is to run his household or to buy his long cherished dwelling.
Business Standard reports

India's inflation indicator confusing, inconsistent: ADB
Press Trust of India / New Delhi January 15, 2010, 22:05 IST
The Asian Development Bank (ADB) today suggested that policy makers in India should consider making the Consumer Price Index the main barometer of inflation as the current system of measuring the rate of price rise on both retail and wholesale prices is creating confusion.
Inflation measured in terms of the Wholesale Price Index (WPI), experts say, is irrelevant at a time when the retail prices are very high. And there is at present a huge gap between retail and wholesale price inflation indices. The difference is due to the high weightage of food items in consumer price indices than wholesale price index.
"Policymakers should make the consumer price index the primary indicator of inflation instead of current two-tier measurement system which leads to inconsistencies and confusion," the multilateral lending agency said in a study.
The Consumer Price Index (CPI) measures the retail prices, but in India there are many measures of this index.
Inflation measured by wholesale rates vaulted to more than a year's high 7.31 per cent in December on higher food prices, mainly sugar, pulses and potato, adding to the government's worries about price rise.
Sugar prices rose 53.98 per cent in December. Sugar in the retail market is selling at nearly Rs 50 a kg.
However, consumer price inflation for agriculture labour and rural labour stood at 15.65 per cent each in November, while retail inflation for industrial workers was 13.5 per cent.
Rising food inflation-- close to 20 per cent -- has been a cause of concern for the government.
Finance Minister Pranab Mukherjee too had voiced concern at a recent pre-budget meeting with the states Finance Ministers here.


Anonymous said...

So its not as if Indian Economists are dumb or dumber...

They know full well the consequences of monetary easing policies as well as the effect of depending upon WPI as a metric for inflation. They know very well that the CPI numbers are horrendous. Yet they do it...they keep interest rates and exacerbate inflation, practically starving the poor to death everyday. WHY??

Because they hope to profit from it...

Ask yourselves how do they profit??

shailesh said...

Corruption costs India $54.34 Billion: C K Prahalad

Mumbai: The cost of corruption to the country could exceed Rs. 2,50,000 crore (Rs. 2,500 billion), according to management guru C K Prahalad. He highlighted that the funding of election campaigns by politicians and the return they try to achieve after they win, as one of the basic reasons for corruption in the country, reports the Business Standard.

If the cost of state elections were also covered, this could easily exceed Rs. 25,000 crore, Prahalad said. The 2009 Lok Sabha elections are reported to have cost the country Rs. 10,000 crore (Rs. 100 billion). Of this, Rs. 1,300 crore (Rs. 13 billion) was spent by the Election Commission and Rs. 700 crore (Rs. 7 billion) by the Central and State governments. The remaining Rs. 8,000 crore (Rs. 80 billion) were spent by political parties and individual candidates.

"I cannot but assume that private funding of elections of this magnitude is predicted on making an appropriate return," said Prahalad, pointing out, "Given the risky nature of the investments in elections, politicians as venture capitalists, we can assume, will not settle for less than a 10-fold return."

Anonymous said...

@ Shailesh,

While C K Prahalad is a highly regarded Management Consulting Guru. I think his thesis is rather simplistic in this case. I don't think the politicians do VC style accounting and think their election expenses as investments which have to bear a 1000% return (10X). I think their thinking is more opportunistic and they tend to thin along the lines of both maximizing their yield in terms of -
1. Trying to get as much as possible by looting, corruption, nepotism and other means without worrying as to whether this is 10x or 100x...
2. Trying to climb up the pecking order in the party so that they can make more money..
3. Do power broking and other forms of horse trading to make sure their hold on their constituency is solidified and they are able to expand..

Specifically on the topic of corruption, besides politicians, the people at the govt. offices right from the clerk's to the officers have a similar logic where almost everyone is trying to maximize their yield via bribery and other means...

One thought is that if one can have an accurate audit of how much money parties and politicians, then we can have an idea of how much corruption exists...

I am stuck on the idea of having transparency for exposing and curtailing corruption. I think the more we can use internet, blogs, RTI and other means to expose corruption, that is enough. You do not have to fight or do anything, just expose the corruption. A lesson on how powerful transparency is can be had with the recent Google-China standoff. Imagine a country like China, with sophisticated military, powerful police and totalitarian/authoritarian governance known for its ruthlessness and Tianenmen square like gross violations of human rights is scared of what? A search engine which can be used for information!!!!!
I find that astounding, mind-boggling that China needs to muzzle Google or else they want to throw out Google...

Just tells me that this scourge of corruption and evils of bribery and mismanagement can be rooted by exposing them..the more we can expose people the better for India.

Anonymous said...

Realty players desperately making excuses for low sales

BTW, reading the first para, my heart bled for the builders and banks. The poor guys went out of the way to make good, high quality stuff at maybe "reasonable value" and what do these filthy NRI's do? Ignore them!! Imagine the "rude" shock the builders got!! Shame on the NRI's...they should flock to such events as PBD and encourage our Builders!

Secondly, it seems the only reason that NRI's are not investing is because of encroachment and cheating etc by parties... Nothing to do with the rates at which the builders are selling their properties :))

Amusing article...worth a read and contradictions galore...

Anonymous said...

curry is overheating yet again (just like chinese hakka noodles) will be inevitable bursting that will be witnessed yet again sooner rather than later

Anonymous said...

Thank you Anonymous @11:17 AM for the link. You are right about no mention of astronomical prices being quoted by the builders of every stripe. What else we can expect from the Times (Paid) News of India.

The builders and Real Estate Companies have already looted the home buyers/investors and are now under the threat from the Shadow Banking System i.e. Hedge Fund, Mutual Fund, Qualified Institutional Investors, underworld etc to pay back or perish. Since most of the gates for the cheap money have closed, they have lined with the bowls. Let us see how long the Government of India and Reserve Bank India help these crooks.

By the way NRIs are not fool not to take care of the higher prices. The NRIs (USA) have already learnt a big time lesson during the ongoing real estate bust. The bust is not yet over because the entire US housing bubble is still being propped up artificially by various Extend and Pretend programs i.e. first time home buyer credit and Housing Loan Modification plan. In spite of this, prices of houses are going down and will gain the momentum in downward spiral once the Fed stops buying the MBSs by the end of March 2010 and the first-time homebuyer credit expires.

Anonymous said...

This is what corrupt Indians do:
Preach idealism and practice corruption.

Home Refinance Loans said...

Thanks for sharing the nice and informative post.

Shrini said...

It is still extremely risky market for under-construction properties. However there are some good deals going on in ready possession property in tier 2 cities and suburbs.

As I said again the prices wont plunge - but will stagnate, until inflation in other items will offset this stagnation and make it an actual drop in prices. If March 2010 inflation crosses 10% I dont see any reason for RE prices to fall. They are still at about 2006 end values at least in Pune and have steadied. YoY inflation has been roughly 5-8% from 2006 so by 2011 this actually makes property prices fall 25-30%.

However every city has a set of overheated localities which are still at unrealistic prices. The units bought by the broker-builder-coroprator-investor nexus will collapse.
However genuine sales will continue via small time builders. who would rather wash their hands off their projects for a marginal discount than hold on via QIP etc.

People who are smart should try to eek out good deals from builders. If you contact 10 builders 9 of them can be adamant, but 1 of the 10 will certainly come up with a fair deal. But then you must make sure that the value doesnt exceed 5 times your (annual income - tax - infaltion offset).

I can bet that prices in India wont ever fall back to pre 2005 levels.
There are forces all around that will not let that happen. Even if you dont buy, the government, will artificially keep inflation high and vasool back the money back from local people.

nisha said...

This is an excellent thought provoking post.

rajni sharma said...

Hey this is really very nice post...
Nd one of your best post...Thanks
Flats in kolkata