Inflation choking India


Cost of Living is climbing steeply in India.

Almost everything is up. While one can understand the inevitable rise in home prices, one cannot understand the reason for rapid, non-stop, week-after-week rise in mundane stuff, such as vegetables.

This is simply untenable. It is not working out for middle income and low income families.

Government has no solution and the Reserve Bank of India (RBI) recently admitted that they underestimated the inflationary impact, though RBI has been raising interest rates regularly from March, 2010. They just raised the rates for the 6th or 7th time (can’t remember how many times they raised in the past 10 months !) earlier this week. But it was too little, too late.

Speculative traders have choked off India. The pain is evident everywhere. People may not be discussing it publicly, as it is rather embarrassing to discuss. Politicians and journalists on TV have been discussing inflation regularly, no doubt, but there is no solution suggested.

Corruption has been adding costs to businesses and citizens for a fairly long time, and now inflation !

This is going to be a tough phase, as the RBI is again going to raise the rates as soon as February. So, growth is going to suffer. Home loan quantum will fall, home owners with loans are already suffering with higher EMI payments. Consumer durables and car sales will have to drop in their growth rates.

So, are we entering a period of tempered growth with continuing inflationary pressures ? Seemingly, yes. This is going to make it tough for the party in power, for the citizens, and for the businesses. Liquidity is already rather tight in the market and it is only natural for the overnight interest rates to exceed some 12 to 14%.

Economic costs will be high and that is not good for India. We need high GDP growth rates of not less than 9%. We cannot choke the growth and such an action will deprive the middle class and the poor people of the potential benefits of growth, while increasing the cost of living.

INFLATION – a dangerous and much underestimated phenomenon is very much a reality and part of our lives today. Can we kill it ? Going to take some tough resolve and an extended fight, I guess.

Cheers

Vijay Srinivasan
29th January 2011
Mumbai

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