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A dosa would cost Rs 224 in 2017!

  • Thread starter Thread starter SuryaKasyapa
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SuryaKasyapa

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The above titled write up is quite relevant in the present scenario of inflation and price rise. It is to be juxtaposed with the big advertisements in Indian newspapers given by the govt comparing the price of LPG in neighbouring ountries of Sri Lanka,Bangladesh etc.I found it ridiculous , as a graduate comparing his better knowledge with that of a kindergarten kid.
In this contex the following write up in another site has relevance.

QUOTE

The inflation heat is on for the consumer. The
country's food inflation rose to 16.90 per cent for the week ending June 12
(on a year- on-year basis), higher than the previous week's 16.12 per cent,
according to the government data released on June 24.
A day later, the Ministry of Petroleum and Natural Gas raised kerosene
prices by Rs 3 per litre, petrol by Rs 3.50 per litre and diesel by Rs 2 per
litre. Even liquified petroleum gas (LPG) got costlier by Rs 35 per
cylinder.
Experts say inflation may see an immediate upward impact of around one
percentage point due to fuel price hike. And a growing threat of inflation
will mean that the Reserve Bank of India (RBI) is also expected to hike
interest rates in the July 27 monetary policy review.
In other words, there will be a hike all across the board, in terms of
prices and loan rates. And the worst part, returns from investments will
fall. Here's how. The economic meaning of inflation is "general and
progressive rise in prices". Which means it continuously affects us.
Let's understand this with an example: The cost of a masala dosa in 1987 was
Rs 3.50. In 1997, it costed Rs 14. If the rise in prices continues at the
same rate, the dosa would cost Rs 224 in 2017. Similarly, the cost of a
Colgate toothpaste in 1987 was Rs 8.05. It was Rs 18.90 in 1997.
At the same rate of progression, we will have to pay Rs 104 in 2017. All of
us have witnessed this slow, but steady increase in prices, often wondering
if our earnings will be able to bear the burden in the long run.
That's not all, as an individual, there are four pillars of finance: Assets
(investments), liabilities (borrowings), income and expenses. And they all
get hit by the dreaded 'inflation'.
*RETURNS *
Assume we are generating returns (in percentage terms) of 6, 20, 12 and 25
from debt, equity, gold and real estate, respectively. If the rate of
inflation in the system is 7 per cent, our real rate of return from debt
will be (in percentages) minus one, from equity, 13; from gold, 5 and from
real estate, 18. Thus, inflation affects all our investments.
During inflation, the rate of interest in the economy rises. Therefore, our
rate of interest on borrowing will rise. Consequently, our liabilities
increase. At the same time, the value of the rupee depreciates and the
basket of goods that can be purchased with the same budget falls
dramatically. While we cannot escape inflation, we can try and reduce its
impact on us.
For instance, we should invest in assets which can generate returns higher
than the rate of inflation. These are equity, gold and real estate. However,
these asset classes are highly volatile. So, we should focus on our
financial goals. For those likely to take place in the next two to three
years, we should invest in debt-based instruments. For long-term financial
assets, consider equity, gold, real estate, etc.
As far as possible, avoid borrowing. However, if there is a loan, get out of
it as soon as possible.
*EXPENSES*
Expenses can be tackled. Broadly, there are two categories, mandatory and
voluntary. Within each, there are fixed and variable expenses. Mandatory
fixed expenses like school fees, house rent, etc. Next, mandatory variable
expenses like grocery, medical and healthcare expenses, etc. There is no way
to avoid mandatory expenses.
In case of voluntary expenses, again two categories. Voluntary fixed
expenses such as gymnasium fees, club membership, etc. Voluntary variable
expenses include eating out, vacations, etc. While inflation is rising, we
should cut the latter and when renewal time comes for the former, reduce or
stop these.
Even after controlling voluntary expenses, if we struggle to make both ends
meet, than a step-down process. Such as transport expenses to go to work, a
mandatory variable expense. One extreme is to go to work in a
chauffeur-driven car. Another extreme is to walk to work. In between are
self-driving, car pools, public transport, etc.
Find the most suitable. Invariably, we focus too much on risks which are
transparent, like volatility in the equity market, illness in the family,
etc. A non-transparent risk like inflation gets ignored. Because we cannot
see the impact of inflation on our finances, it does not mean this does not
exist. It takes a silent toll.
*The writer is a certified financial planner.*



UNQUOTE
[FONT=&quot]Link: Kerala friends കേരള കൂട്ടുകാര്‍ | Google Groups[/FONT]

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Tomorrow the opposition parties have called for a ntionwide bandh protesting price rise...!!!!!!





Greetings
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Dear Surya Kasyapa,

Here are some of my counter points.

1. Inflation per se is not bad. By definition, inflation is "too much of money chasing
too few goods".
As long as the inflation stimulates growth, it is welcome. This
way, up to 6% inflation is considered good for an economy.

2. The evil effects of inflation are:
(a) A sum what was worth yesterday is not worth as much today and tomorrow,
its worth will fall further.
(b) Inflation retards investments as well as borrowings. But, if you ask me, borrowing
Rs.100 today and repaying it sometime later is actually repaying a lower amount
(inflation adjusted). But, borrowing for mere consumption is to be avoided.
Similarly, cost of borrowing also is to be kept in mind.
(c) Since savings and investments are affected, funds available for lending will also
become scarce. Here, the role of monetary (RBI) and fiscal (MOF) authorities is
very crucial.

3. The present rate of inflation as measured by "All India Consumer Price Index for
Industrial Workers" is 13.3% and it is expected to touch 12% by September this year.
(Wholesale Price Index is marginally higher than 10.2%) The exact impact of rise in
fuel prices will be known only by next month, as it will have a cascading effect on all
economic activities, products and services.

4. Construction of several indices used for measuring inflation was done several decades
ago and some of them are outdated. Their composition and weight attached to each
component in them deserve complete overhaul. Moreover, a lot of manipulation
takes place in publishing the correct data. Hence they are not accurate and reliable.
(Government itself does this - Ministry of Statistics, Ministry of Finance, Ministry of
Labour and Ministry of Commerce are the villains). RBI is a mute spectator in this
sordid game.

These are the prescriptions for containing inflation.

1. Reduce all non-productive expenditure in a big way.

2. Increase public spending where the poorest sections will be directly benefited. But,
mere freebies wont do any good. On the contrary, they will make the people lazy
and too dependent on the government's mercy.

3. All conspicuous consumption beyond certain limit must be taxed and taxed heavily.

4. By suitably altering the lending rates and also encouraging domestic savings in a big
way, some tangible results can be achieved.

5. By intervening in the forex market, as and when necessary, RBI can keep the
exchange rates of various currencies within a tolerable band.

6. By regulating the forex inflows and outflows, Ministry of Commerce, in consultation
with Ministry of Finance, can control the money supply.

7. By suitably realigning the tax rates and policies, the Ministry of Finance can keep
necessary checks.

States on their part, must come forward to reduce their non-plan expenditure and uncontrolled borrowings.

For all this to happen, proper planning and execution are very, very essential.
 
Last edited:
Sri Pannvalan,

You are quite right, when these are viewed from the angle of macro economics.

But for a layman or a housewife, the immediate effect and thereby the utmost concern is , while cost of each thing to be purchased is increasing, the income is not increasing in that proportion.

For eg a few months ago the price of Thoor Dal( துவரம் பருப்பு) went upto above Rs 100 from a level of 35 to 40. The sudden jump could not be faced by the common man.This item was one most consumed in most ordinary families especiallyin North and western India , as their main curry with Chapathi/Roti is Dal.In a single month a family has to shell out more by about Rs 400-to 500 . Simultaneously the price of milk went up by about 12-15 per litre. Two essential items which a household cannot avoid. Potato and Onions, the other commonly used items also were selling at very high prices.

Though bombastic terms like "supply side inflation", "demand side inflation" ,"money supply" "sucking liquidity" etc were used by bureaucrats and ruling ministers , how a household got affected nobody knows. A lady of the house cannot substitute these words these to the members of their family in place of the daily curry or milk or tea.

The family has to cut its quantum of milk and dal,and the daily vegetable.Naturally it affects the general health and nutrition , and thereby the healthcare expenses get increased.Tension also mounts in the family.

It will be startling to know that in all these fields, the multinationals have fixed their octopus hold, and control the supply and price.
In certain states, thousands of acres of agricultural lands are under their control and they dictate what is to be produced.Commodity exchanges are encouraged and the futures price is manipulated . However, as the big buyers form monopolies or cartels, and dictate the buying price,the actual base producer does not get good price. But holding the supply distribution and selling at their own manipulated determined price, these big players create artificial situations. Instead of supplying milk, they use the milk to process and then sell at higher prices processed milk and milk products.

Highly paid marketing executives develop any number of new methods to make artificial shortage of base products and make available value(price only) added products to fleece the helpless consumer.

While economists,bankers, academics and highly paid/high income group can easily explain away the phenomenon of price rise, the common man ,a family with only a single income earner cannot do so but go through the trauma of cutting down the daily needs, and worry everyday what he can do next day.

(பூனைக்குட்டிக்கு விளையாட்டு,
சுண்டெலிக்கு பிராண வேதனை)

Greetings
 
I agree with you on certain points straightaway.

The food inflation is around 16% to 18% now and during the last 3 years, prices of rice, cereals and pulses, edible oil, vegetables and fruits, cooked and processed food, juices and drinks and all other edible items have risen by 50% to 60%, whereas the salaries/income of an ordinary person has gone up by only 20%. This has forced him to cut his monthly allocation on food drastically. The worst affected people are in the unorganised sector and poor and lower middle classes belonging to salaried sections, engaged in petty trade or small business.

Fuel prices have gone up by at least 20% during the last 3 years. When DMK was in the opposition, they demanded a cut in the state taxes, to compensate for the rise in petroleum products, when the union government, in which they have been an integral part, increased the prices of petroleum products. Today, the same DMK, in power at the state, ventures to say that only because of pressure from them, the union government was made to restrict the increase to the present level. What a hypocrisy and double standard!

As sociologists the world over say, an average household now spends more than 75% of its income on rent, health and children's education. Is there any study done at a national level on the trends in these 3 areas? Increase in spends on these 3 aspects, has been more than 100%, during the last 3 years.

Let the cabinet ministers and top bureaucrats, who enjoy luxury at the cost of the general public, travel by public transport and get treatment for them and their families in general hospitals run by the government. Let them visit vegetable markets and super markets, once in a while with full media glare. Then they will realize the travails of a common man.

I wish to conclude this with a statement of John Maynard Keynes.

"Rich people, regardless of inflationary trends and interest rates will tend to save. Poor people anyway do not have surplus income left to save. It is only the middle classes who decide the quantum of savings in an economy."
 
Last edited:
Sri Pannvalan,

That is right,

To quote a Malayalam example saying:

"ஓணம் பிறந்நாலும் உண்ணி பிறந்நாலும்
கோரனு கும்பிளில் கஞ்சி"

"Whether Onam or a childbirth Koran has only gruel as meal "

Essence meaning that whether it is a festival or not the ordinary man's situation never changes. His poor condition never allows him to celebrate any occasion.
 
I am reminded of the song in 'Tulabharam' where the initial lines echo the proverb you have cited.

"Selvargal illathil seerattum pillaikku
Pon vannak kinnathil paal kanji"

"Kanneer uppittu Kaveri neerittu
kalayangal adudhu sorindri;
idhayangal yengudhu vazhvindri"

In this song, Kannadasan has compared and contrasted the two extremes - richness and poverty.

What sins these innocent babies have committed?
 
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