INDIA has peculiar status economy wise.India has two economies, one the formal and official economy, which is captured in the official figures. But there is a second economy which is informal and unorganized and that is only imperfectly captured by the official figures.
Indian economy is developing and growing economy. the growth engines run on constant supply of skilled man power due to which progressive rise of GDP with bad inflation and steep prices as a side effect.
what is inflation? reduction of effective buying power of a rupee.
thats why, People who work in IT companies in India, get Salary hikes ranging from 15% to 30% every year, where as in America the average hike per year in salary is just around 3%.
what is Purchasing power parity ?
Purchasing power parity comparison would involve taking a sample basket of goods and services and then comparing their prices and coming to an average of the these prices between the two countries to be compared in arriving at a purchasing power parity exchange rate.
For ex. A pint of beer in India costs only 29% of the US price, a cab ride costs only 10% of a similar taxi ride in USA, a litre of petrol in India costs 139% of USA and medicine for common cold for six days costs 19% of what it costs in the USA. The Indian rupee can buy much more goods and services in India than the US dollar in the USA.
India is going through a rapid growth. Whatever growth happened in US in 100 yrs or so, is happening in 10 ys in India.With this kind of rapid growth, its natural,there will be inflation and price fluctuation and lot of chaos.
In 1984, one used to buy dosas in hyderabad for 1-2 rupees. 30 years later, it is 25-35 rupees. I bought samosas for 25p, and now it costs 10-15 Rs. The house my parents bought for 8 lakhs(1984) is “worth” 4 crores now. A senior Class 1 central govt officer used to earn around 1800-2100 Rs. Today they make over 70,000 per month. What it took 225 years in the US, it only took 30 years in India. People who saved their money and put it into FDs for retirement got big disappointment.
if we can compare in terms of % wise the Salary & Expenditure..For eg: In India, a person who is getting 50,000 p.m.salary,he or she will have to spend 10,000 rent, 8000 food, utilities etc..expenses, 5000 other expenses for a family of 2 or 3.
Where as a person in US getting around $4000 p.m. would spend $1000 rent, $300 food,utilities, $200 other expenses..So all the expenditures %-wise in India are much higher to US.
Growth @Fast Forward...?
Indian GDP is growing at more than 10% while US is barely at 3%.
Growth in India will continue as long as skilled labor continues to be available.
It is not earthly resources that matter anymore. It is human skill level that decides the fate of a country.
Buying value of rupee is decreasing. That means that Rupee is depreciating in real terms.
But the salaries are not growing in pace with depreciation.
The good thing for a developed stabilized economy like USA is that there is very low inflation and affordability of money is much more. An engineer can buy house in one or two year’s salary there, but in India you are not sure even salary of 10-20 years can buy you that.
Why this huge disparity between dollar and rupee?
If you compare in terms of purchasing power parity, the value of a dollar in rupee terms is around 28, whereas the exchange rate is 62. Hence the rupee is undervalued or has been deliberately made undervalue due to various reasons known better to RBI. But what one school of economists suggests is, Its about time, India need to think about what it is paying for resources like Oil (more than double in reality) and what it is getting for its resources like iron ore (less than half in reality).
Revaluation and letting the currency to appreciate should be thought, else u are just giving away your precious resources to countries like US and Europe whose currencies are overvalued abnormally (European currencies are the most overvalued in the whole world!!).
India has to increase its export 3 times its import.
Indians has to stop consuming the products of MNCs.
Unless the purchase power of rupee is increased the souring prices of commodities will never come down. We have to exert ourselves to reduce our requirements of import and increase the export and realize the money.
What is the role of interest rates?
The bank interest rates are decided by RBI, which will always be few points less than the prevailing rate of inflation, this will be always the same in any country because no country would like to print bills just to pay the interest on deposits.
Indian economy is developing and growing economy. the growth engines run on constant supply of skilled man power due to which progressive rise of GDP with bad inflation and steep prices as a side effect.
what is inflation? reduction of effective buying power of a rupee.
thats why, People who work in IT companies in India, get Salary hikes ranging from 15% to 30% every year, where as in America the average hike per year in salary is just around 3%.
what is Purchasing power parity ?
Purchasing power parity comparison would involve taking a sample basket of goods and services and then comparing their prices and coming to an average of the these prices between the two countries to be compared in arriving at a purchasing power parity exchange rate.
For ex. A pint of beer in India costs only 29% of the US price, a cab ride costs only 10% of a similar taxi ride in USA, a litre of petrol in India costs 139% of USA and medicine for common cold for six days costs 19% of what it costs in the USA. The Indian rupee can buy much more goods and services in India than the US dollar in the USA.
India is going through a rapid growth. Whatever growth happened in US in 100 yrs or so, is happening in 10 ys in India.With this kind of rapid growth, its natural,there will be inflation and price fluctuation and lot of chaos.
In 1984, one used to buy dosas in hyderabad for 1-2 rupees. 30 years later, it is 25-35 rupees. I bought samosas for 25p, and now it costs 10-15 Rs. The house my parents bought for 8 lakhs(1984) is “worth” 4 crores now. A senior Class 1 central govt officer used to earn around 1800-2100 Rs. Today they make over 70,000 per month. What it took 225 years in the US, it only took 30 years in India. People who saved their money and put it into FDs for retirement got big disappointment.
if we can compare in terms of % wise the Salary & Expenditure..For eg: In India, a person who is getting 50,000 p.m.salary,he or she will have to spend 10,000 rent, 8000 food, utilities etc..expenses, 5000 other expenses for a family of 2 or 3.
Where as a person in US getting around $4000 p.m. would spend $1000 rent, $300 food,utilities, $200 other expenses..So all the expenditures %-wise in India are much higher to US.
Growth @Fast Forward...?
Indian GDP is growing at more than 10% while US is barely at 3%.
Growth in India will continue as long as skilled labor continues to be available.
It is not earthly resources that matter anymore. It is human skill level that decides the fate of a country.
Buying value of rupee is decreasing. That means that Rupee is depreciating in real terms.
But the salaries are not growing in pace with depreciation.
The good thing for a developed stabilized economy like USA is that there is very low inflation and affordability of money is much more. An engineer can buy house in one or two year’s salary there, but in India you are not sure even salary of 10-20 years can buy you that.
Why this huge disparity between dollar and rupee?
If you compare in terms of purchasing power parity, the value of a dollar in rupee terms is around 28, whereas the exchange rate is 62. Hence the rupee is undervalued or has been deliberately made undervalue due to various reasons known better to RBI. But what one school of economists suggests is, Its about time, India need to think about what it is paying for resources like Oil (more than double in reality) and what it is getting for its resources like iron ore (less than half in reality).
Revaluation and letting the currency to appreciate should be thought, else u are just giving away your precious resources to countries like US and Europe whose currencies are overvalued abnormally (European currencies are the most overvalued in the whole world!!).
India has to increase its export 3 times its import.
Indians has to stop consuming the products of MNCs.
Unless the purchase power of rupee is increased the souring prices of commodities will never come down. We have to exert ourselves to reduce our requirements of import and increase the export and realize the money.
What is the role of interest rates?
The bank interest rates are decided by RBI, which will always be few points less than the prevailing rate of inflation, this will be always the same in any country because no country would like to print bills just to pay the interest on deposits.
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