[w 12]

Originally Posted by Samurai

Whether it is good or bad entirely depends on the balance of trade. Countries with trade surplus (more export than import, which is a good thing) hate their currency getting stronger against major currencies. That pushes them to the wrong side of demand curve. That is the case with India.

Countries with trade deficit (more import than export, which is a bad thing) hate their currency getting weaker against other major currencies. That reduces their buying power. That is the case with USA.

I think the basic presumption of your argument is wrong..

India Imports much more than it Exports..( Imports 188 Billion USD against exports of 112 billion USD ) Economy of India - Wikipedia, the free encyclopedia

so there should not be an issue If Indian currency grows stronger wrt other currencies..., as per your own argument.

[typeOnegative]

Originally Posted by lurker

Why yes and no. Either you say 'yes' or say 'no'.

Theoretically yes. But I have asked you to look at it in practical terms.

Originally Posted by lurker

You said China has a low-cost structure, what prevents India from adopting the same ?? ....

Even I have wondered.

Originally Posted by lurker

India is also very much a managed economy. ONly problem is that it is managed by the Govt of India on behalf of some petty corporate interests and not the interests of wider nation at heart. The hearts of our ministers bleed for certain corporates like the one that starts with an 'R'.

And here I can see an answer. As also some angst.

Originally Posted by lurker

Ordinary people far off from power think that there are certain very high-brow reasons why our economy is managed in such a way and why it has developed a high-cost structure. The fact is it is managed on behalf of and for a few influential corporates. No other bigger purpose exists.

Agreed. Look I am not for or against the rise and fall of the rupee. People and organizations adapt. All I care about is that the nation maintains and grows its economic might.

P.S. Which economics school do you subscribe to? You seem to be on the left side of things.

[tsk1979]

Originally Posted by lurker

Can you provide data on inflation pre-1990's and post 1990 to back up your claims ??

What was the percentage of inflation before rupee devaluation and post devaluation.

You have misread my post.
I am saying both schools of thought valid or invalid as you look at it.
As for inflation data, let me tell you inflation is a number. If your income increases more than inflation, it does not pinch, but if its the other way round it pinches.

As for pre 1990 data, let me stat a fact, not a thought. The overall living standard of people in the country has gone up dramatically. Urban India has seen the most benefit, but in rural areas also its trickling down now.

Also you will see that the opening up of the economy has resulted in our economy being linked to the global ecnonomy. During the bust early this century, a weak rupee saved India for going East Asia/US way.

OTOH there are situations where a strong Rupee is beneficial.
All I meant to say there is no hard and fast rule, there are two sides of the Rupee coin. Where you tilt depends up on your economic orientation.
I am Right-ish Libertan, so my views will be very different.
I can bring up tonnes of data supporting by claims, and you can bring data supporting yours, but neither is correct fully.
If one school of thought was absolutely correct, we would not need multiple schools of thought.

Another argument of narrow mindedness and looking out just for myself, why not. Everybody does so. The farmers sell their produce to feed their own families. There is nothing wrong with that. If a particular scenario is beneficial for me I would want that to happen. Why should I chose a scenrio which is beneficial to others and not to me.

Talking about long term/short term, in economics you cannot predict much long term, at best medium term.

Look at GDP/capita

[kvish]

Wow! Is this an auto forum or what??? This thread has forced me to get my knowledge of economics in better Shape....

Anyway, one thing for sure, if anyone thinks that a country with a large economy like ours (in terms of scale), growing at 8% every year, will have a depreciating currency, they better wake up to reality. There will be appreciation and appreciation will continue till there is a blip in the growth story!!.
All the pains of job losses and squeezed opms are part and parcel of the existing economy world wide...we are more linked to the global economy than ever before, so these are obvious consequenses!

[Samurai]

Originally Posted by w 12

I think the basic presumption of your argument is wrong..

India Imports much more than it Exports..( Imports 188 Billion USD against exports of 112 billion USD ) Economy of India - Wikipedia, the free encyclopedia

so there should not be an issue If Indian currency grows stronger wrt other currencies...

My basic argument is not wrong, only my fact. There is no reason to be happy that India has a trade deficit. If rupee becomes stronger, it encourages more import & less export, and our trade deficit only increases.

On the other hand, with less exports, we will have less dollars to spend, therefore dollar will again rise against the rupee there by completing the cycle. This is assuming RBI keeps their hands off.

As Tanveer mentioned, it is very difficult to predict the economy beyond a few months, and impossible in a long term. That's why macro economics is the biggest mystery ever. Therefore I usually stick to how the economy affects me and not look at how it works in the grand scheme. I don't think anybody really knows how it works. Everybody has their pet theory though.

At the grass root level where most of us operate, the prices are sticky in downward direction. When raw material costs rise, everybody is more than happy to rise the price. When costs fall, nobody wants to reduce prices unless market forces them. Therefore, for many businesses like me, the costs like rent and salaries remain sticky.

[tsk1979]

During 1970s inflation hit 16% too.
So cant blame rupee for current inflation trends, can we?

Inflation data,
YearIndexInflationYearIndexInflationYearIndexInfla tion

1968177
19824757.71199530610.07

1969175-1.13198353212.0019963349.15

19701845.1419845768.2719973587.19

19711903.2619856085.56199840513.13

19722026.3219866618.7219994244.69

197323616.8319877198.7720004414.01

197430428.8119887879.4620014583.85

19753215.591988160Base Change20024774.15

1976296-7.7919891716.8820034963.98

19773218.4519901868.7720045143.63

19783292.49199121213.9820055364.28

19793506.38199223711.7920065696.16

198039011.4319932526.332006123Base Change

[tsk1979]

Oops!
My Life: Indian Inflation Data

[lurker]

@tsk,

Well, I can definitely post a general trend pre-1990's and post 1990's.

In the pre-1990 stage the trend towards inflation was on the ascendent both in 'developed economies' as well as in 'developing economies', so on the basis of trend analysis alone certain facts will stand out. India had higher rates of inflation when the whole world was having 5%> inflation. But post 1990s the level of inflation came down in the Asian economies and in the western ones. But in India it rocketed to above 10%, this happened immidiately post devaluation.

507 Shankar Acharya, An overview
SHANKAR ACHARYA

If growth is the key measure of macroeconomic performance, inflation (or rather its absence) is the generally preferred indicator of macroeconomic stability. The 1950s was the best decade in the last half century as far as inflation is concerned; the ’70s had the worst record, with annual inflation averaging in double digits. This is mainly because the decade straddled the two oil shocks of 1973/74 and 1979/80. In both the decades since 1980/81 inflation has averaged in the 7 to 8% range: the average annual rate was 7.2% in the ten years upto 1990/91 and 7.8% in the 10 years since. If the crisis year of 1991/92 is omitted, the average rate of inflation in the last nine years was 7.1%.





How does India’s inflation record stack up in international perspective? In the ’80s India’s average inflation rate of 7.2% was close to the average rate for Asian Developing Countries as a group (7.1%), a little above the average rate for the ‘Advanced Economies’ (5.6%) and much lower than the average for all Developing Countries (39.0%), which was driven high by Latin American inflation (145.4%).

In the most recent decade a similar pattern is repeated except for the conspicuous difference that inflation in Advanced Economies is very low at 2.6%, or one-third the average rate for India. Two other points are noteworthy. First, although the average inflation recorded by Asian Developing Countries is marginally higher than India’s for the decade, the Asian group does better than India in the two most recent years. Second, Latin American inflation has dropped to single digits in the last three years.

All of this suggests that in the closing years of the 20th century the inflation dragon had been slayed in most parts of the world. This was both a boon to India (in helping contain price increases of freely traded commodities) and a challenge to keep inflation low or suffer the penalties in competitiveness and exchange rate volatility.

As with economic growth, inflation is a multi-causal phenomenon, which defies simple explanations. A short heuristic story would run as follows.

The balance of payments crisis of 1991 and attendant severe restrictions on imports disrupted industrial production. Coupled with a bad year in agriculture these supply problems propelled inflation to nearly 14% in 1991/92. Inflation moderated in the next two years as the stabilization programme took hold and confidence in macromanagement was restored. By the second half of 1993/94 the restoration of confidence and liberalization of foreign investment policies had triggered a temporary surge in foreign capital inflow, which added over US$ 12 billion to foreign exchange reserves between September 1993 and October 1994.





As a result, reserve money shot up by 25% in 1993/94 and by over 22% in 1994/95, fuelling broad money growth of over 18% in 1993/94 and 22% in 1994/95.3 This surge in liquidity pushed inflation back up to 12.5% in 1994/95. By the following year monetary growth had been curbed and the simultaneous boom in industry and imports ensured an easy supply situation, resulting in moderation of inflation down to 8%.

In 1996/97 aggregate demand cooled as both investment and exports levelled off after the boom in the preceding three years. The supply situation remained easy with strong growth in agriculture and industry. More significant for the medium-term, the cumulative impact of import liberalization and customs tariff reductions combined with low world inflation in manufactures to bring down the increase in the wholesale price index for manufactures, WPI(MP), to 2.1% in 1996/97. As a result, the increase in the overall WPI dropped to 4.6% in 1996/97.

From 1996/97 onwards inflation in India has remained low, powerfully influenced by the prevalence of very low inflation in industrialized countries and (therefore) internationally traded manufactures, combined with an increasingly open trade regime in India. Core inflation, measured by WPI(MP), stayed around 3%, except for a blip up to 4.4% in 1998/99.

Since manufactures have a weight of about 64% in the WPI, low increases in WPI(MP) have translated into low inflation in the WPI. In two years there were sharp spikes in the indices for ‘primary articles’ and ‘fuel, power, light’, which temporarily raised the rate of WPI inflation. In 1998/99 the spike was due to the flare up in prices of a handful of agricultural commodities, especially onions and potatoes. In 2000/01 the major increases in petroleum prices were the main culprit.

The relatively low inflation in the second half of the decade also reflected two other factors: mostly moderate increases in money supply and, more worryingly, the apparent slack in autonomous investment demand.

[tsk1979]

India - Inflation rate (consumer prices) - Historical Data Graphs per Year
This is the data after 1999.
I still don't see any correlation between inflation and value of Rupee. I think this was what the topic was initially.
We were discussing that wether the Rupee apreciation is good or bad
I am right-ist Libertan, so I will always support what seems to be good for me now, and I will give data and articles supporting that.

I still maintain, what you say and what I say are just different schools of thought. No matter what you post here is going to change my opinion, and no matter what I say is going to change yours So Peace

[Zappo]

Lurker buddy... by any chance are you a leftist? You are talking probably a lot of sense and are the final word in economics. I bow to your calibre. But tell me something. If the rupee actually goes down the way you want it to and business and social scenarios keep trying to adjust to the new rupee value (unions will go and ask the corporates to start paying less salaries, the neighbourhood kirana shop will start selling at lower prices, the landlords will ask for lower rents... even the farmers will start asking lower returns for their produce) the imports will definitely shoot up. So soon we will have a balance of payment crisis. Afterall who can resist buying cheaper stuff. Heck, our own costs will be higher than some other countries and they will flood our market with their products (uh oh... thats a problem right... because your 'poor and opressed' Non-"IT/VITY" people will find it even more difficult to sell their stuff). Where do you see all this going? And by the way, if you think that export is really important to maintain balance of payment then let me ask you have you seen the percentage of the export pie that the "IT/VITY" sector contributes to the nation's exchequer?

Finally you also brought in Reliance and its Retail Venture into the picture I guess. You are miffed that they hoard the vegetables and fruits and jack up the prices. Well, I am no big Reliance fan... or at least do not have any big time benefit by supporting them. And yet let me tell you you are far removed from the realities. Reliance has done the exact opposite with their farm products business. They have driven down the prices to an extent where those farm producers and even other malls that sell vegies (ok some big retail chains were selling it at higher prices than the mkt) in the cities of Orissa and MP have decided to vandalize their outlets. If they are costly it should be very easily for these people with a halo around their heads to sell their wares right? At least I won't pay more to reliance if someone else is selling it cheaper to me? Nor will anyone else. So what are they so afraid of? And here is some data. AP has farmer's markets just like all other states. They are supposedly the cheapest. However it has reached a pass where Reliance is working out cheaper than them. Last month or so when the cheapest allu in hyderabad was at Rs.11 a kilo Reliance started selling it at Rs.9 per kg. Of course, what you call hoarding is not hoarding but is called centralized procurement. And these things can not be hoarded for long. They are just efficiently channelized across the country so the prices become uniform.

I must say once again. I am not an economist and you definitely seem to have a lot of knowledge in it. However this knowledge of yours does not seem to work in the practical world where I live. My post is just out of general observations and experiences.

[lurker]

Originally Posted by tsk1979

India - Inflation rate (consumer prices) - Historical Data Graphs per Year
This is the data after 1999.

This data is irrelevant in the post-devaluation scenario of post-1991.

I still maintain, what you say and what I say are just different schools of thought. No matter what you post here is going to change my opinion, and no matter what I say is going to change yours

I am willing to change, I am not headstrong.

[lurker]

Originally Posted by Zappo

Lurker buddy... by any chance are you a leftist? You are talking probably a lot of sense and are the final word in economics. I bow to your calibre. But tell me something. If the rupee actually goes down the way you want it to and business and social scenarios keep trying to adjust to the new rupee value (unions will go and ask the corporates to start paying less salaries, the neighbourhood kirana shop will start selling at lower prices, the landlords will ask for lower rents... even the farmers will start asking lower returns for their produce) the imports will definitely shoot up. So soon we will have a balance of payment crisis. Afterall who can resist buying cheaper stuff. Heck, our own costs will be higher than some other countries and they will flood our market with their products (uh oh... thats a problem right... because your 'poor and opressed' Non-"IT/VITY" people will find it even more difficult to sell their stuff). Where do you see all this going? And by the way, if you think that export is really important to maintain balance of payment then let me ask you have you seen the percentage of the export pie that the "IT/VITY" sector contributes to the nation's exchequer?

Finally you also brought in Reliance and its Retail Venture into the picture I guess. You are miffed that they hoard the vegetables and fruits and jack up the prices. Well, I am no big Reliance fan... or at least do not have any big time benefit by supporting them. And yet let me tell you you are far removed from the realities. Reliance has done the exact opposite with their farm products business. They have driven down the prices to an extent where those farm producers and even other malls that sell vegies (ok some big retail chains were selling it at higher prices than the mkt) in the cities of Orissa and MP have decided to vandalize their outlets. If they are costly it should be very easily for these people with a halo around their heads to sell their wares right? At least I won't pay more to reliance if someone else is selling it cheaper to me? Nor will anyone else. So what are they so afraid of? And here is some data. AP has farmer's markets just like all other states. They are supposedly the cheapest. However it has reached a pass where Reliance is working out cheaper than them. Last month or so when the cheapest allu in hyderabad was at Rs.11 a kilo Reliance started selling it at Rs.9 per kg. Of course, what you call hoarding is not hoarding but is called centralized procurement. And these things can not be hoarded for long. They are just efficiently channelized across the country so the prices become uniform.

I must say once again. I am not an economist and you definitely seem to have a lot of knowledge in it. However this knowledge of yours does not seem to work in the practical world where I live. My post is just out of general observations and experiences.

Not really a 'leftist', I am not part of the marx, mao, JNU crowd. Probably I seem 'leftist' because I oppose certain aspects of corporate India: political nexus that screws the entire country for narrow interests.

You are correct that Reliance sells cheapest currently. I also wish it would sell you cheapest forever. But I am also tempted to look at Walmart who sold cheap to bust the competition and until all of them went bankrupt, when it monopolised the grocery business it went about pricing as it felt. I wish Shri Ambani is more benevolent towards his citizens than that, but also feel it is better to err on the side of caution.

We can revisit this topic in 5 yrs.

[typeOnegative]

Originally Posted by lurker

Not really a 'leftist', I am not part of the marx, mao, JNU crowd. Probably I seem 'leftist' because I oppose certain aspects of corporate India: political nexus that screws the entire country for narrow interests.

It has happened for ages. But what is the alternative? Kill 'em all? I have seen greater harm being done even in the era when there was no "IT/VITY".

Originally Posted by lurker

You are correct that Reliance sells cheapest currently. I also wish it would sell you cheapest forever.

Competition can do that. In the case of retail, it would be great if there are three to four big names playing the game. Then we all benefit.

Originally Posted by lurker

But I am also tempted to look at Walmart who sold cheap to bust the competition and until all of them went bankrupt, when it monopolised the grocery business it went about pricing as it felt.

Is the customer really suffering? Besides, Walmart has never been able to knock off everyone. Firms come and go. Walmart has had its share of success in the US but is struggling practically everywhere else.

Originally Posted by lurker

I wish Shri Ambani is more benevolent towards his citizens than that, but also feel it is better to err on the side of caution.

Caution has held back India for a very long time. Move without undue haste but don't wait for the entire world to rush by you.

Originally Posted by lurker

We can revisit this topic in 5 yrs.

Yes that would be interesting.

[tsk1979]

Originally Posted by lurker

This data is irrelevant in the post-devaluation scenario of post-1991.
I am willing to change, I am not headstrong.

Why is the data irrelevant? Its inflation.
I don't want to change anyone. The arguments you present are know to me. I have read those articles. They did not convince me, because I subscribed to a different school of thought

Originally Posted by lurker

Not really a 'leftist', I am not part of the marx, mao, JNU crowd. Probably I seem 'leftist' because I oppose certain aspects of corporate India: political nexus that screws the entire country for narrow interests.

You are correct that Reliance sells cheapest currently. I also wish it would sell you cheapest forever. But I am also tempted to look at Walmart who sold cheap to bust the competition and until all of them went bankrupt, when it monopolised the grocery business it went about pricing as it felt. I wish Shri Ambani is more benevolent towards his citizens than that, but also feel it is better to err on the side of caution.

We can revisit this topic in 5 yrs.

Walmart effect is overhyped. So if walmart has higher prices people will buy from the internet, or go somewhere else. Thats the beauty of true free market.
In the Us there are so many big supermarkets in small areas that people have a choice.
Reliance will be swatted by Big Bazaar of one of the other giants if they try to sell it for a price. I laud them. I know many farmers personally who will lead a comfortable summer thanks to reliance and other evil companies.
Earlier they had to throw away their rotten produce because the cheapo market agents were cartelizing and not picking up produce, and the govt was too lazy. Its the market agents and dalals who are the most vocal opponents of organized pickup. They are the only group that gets hit.
Think of it as the local moneylender in village crying fowl because the loan given by banks is at 10% as compared to 25% charged by him. So now he cant have his fiefdom.

Your concern that it will be a manipulated free market is okay.Its good to be paranoid. But don't let Paranoi cloud your judgement. My Grandfather is a staunch communist and chairman of small political party too. He told me mid 1990s that in another 5 years there would be rioting on the streets and people would die of hunger en masse, and other prophecies of doom for India due to sellout by Manmohan Singh, but I am yet to see this happening. In a manipulated market masquerading as free market you will get the worst of both worlds, but I feel that best for me is the true free market. It is a double edged sword no doubt, if somebody is better than me and does it cheaper, I will be replaced, but I tend to look at it as if I am better than somebody I will replace that person.

[lurker]

Originally Posted by tsk1979

Why is the data irrelevant? Its inflation.
I don't want to change anyone. The arguments you present are know to me. I have read those articles. They did not convince me, because I subscribed to a different school of thought

It is irrelevant because it is 10 years post the devaluation phenomenon. Either take Macro data of 2 decades 80s/90s or else take data post 1991. Else how will analyse a trend ?

As for 'schools of thought' I believe one must always adapt with the times, or be prepared to become irrelevant or wither away into the past. I am willing to listen to you and be convinced provided you show me the right way. I have to adapt to the changing times.