Bread will come from Infrastructure!

In one of my earlier posts (Inflating Inflation in India) I had said that the inflation rate in India was more than what it should be. And this was primarily because infrastructure was woefully inadequate in the country. A low-inflation high-growth scenario is only possible if there is an underlying infrastructure to support real economic growth.

I am happy that Laloo Prasad Yadav also thinks the same. Amusing, though he may sound, his grasp of economics is firm. “Roti – Infrastructure se ayega” (Bread will come from Infrastructure – I am not sure how the translation sounds!). Nevertheless his point is valid and well accepted. And I am glad that he is in the Parliament! I would like to see him as a Prime Minister someday. Maybe he could turn this country around like he did with the Railways!

This is the link to the video on YouTube. It’s a must watch. The part where Laloo brings out the infrastructure issue, is about 4:45 minutes into the video. Enjoy.

Link: http://in.youtube.com/watch?v=VTh2dVarKd4&feature=related

Inflating Inflation in India

Another run-away-red-hot topic for my blog! (Wonder why my blog readership is still limited to me and my family). Inflation is something that I have been planning to write about for a long time. But I was worried about the increasing prices. 

The official explanation for the run-away inflation in India is that of the increasing crude oil prices. And in response, the RBI and the Finance minister are furiously working the interest rates to reduce money supply. Thus reducing demand (so they say) to match supply. But to no effect!

Haha. Well, I don’t think that is not responsible for the situation, but there is an underlying disease that is causing these symptoms. Tinkering with the interest rates and duties will not help. It helps only in text books with a lot of other variables remaining constant. In real life it is not a money supply problem. Common sense says, people are not consuming greater and greater amounts just because they have money to burn. The reason behind inflation is not increased demand but reduced supply of food and other basic necessities. And the reason behind the reduced supply is an infrastructure which is crumbling faster than a damp chocolate cookie. Nudging repo rates and levies will not help.

And as the Congress government goes into election stupor do not expect any more of those infrastructure investments either. Part of the reason why it is going to be difficult to catch up to China in terms of development is because the Congress governments over half a century of their soporific rule have denied India the vary basic infrastructure that is needed to support real economic growth. Mumbai will never become Shanghai as early as 2020. Sorry it ain’t happening. 

To avoid going the Zimbabwe-way, India needs to invest more in roads (Thus reducing precious fuel wasted in traffic jams), alternate sources of energy, domestic sources of gas and petroleum, nuclear and hydro-electricity. That won’t happen because there is a conflict of interest here. Sunset politicians will never remove infrastructure woes, because that is their election plank. They much rather hunt Chinkaras and make merry in their opulent farmhouses. 

Economics and Whispers collide!

A lot happens by word of mouth in India. Real estate prices being one of them. A market that is totally controlled by touts and brokers. “Sir rates to double ho gaya!”. And they have taken prices not only beyond the ordinary Indian but beyond the ordinary American or European as well. I did a quick search on Magicbricks on residential properties in Mumbai which are more than a mere Rs. 5 crores in price. I got all of 79 pages of property listings. And this was substantially more than what I got for a search between Rs. 60 lacs and Rs. 1 crore. 

The fact that there is a substantial market at levels like these, and is being sustained, makes you question the most important choices you have made in your lifetime. (You mostly question your qualifications!) 

Haha, I happened to watch a program on Discovery Travel and Living. This was a program on high flying agents in Hollywood. They were the people who were looking for houses for Bill Gates, Madonna, Tom Cruise and the like. Now I was amazed to find some of the bargains on offer. (1 Million USD is roughly equal to 4 crores of Indian rupees) For as low as $ 5 – 6 Million you can get a 5 bedroom house with a Olympic size swimming pool and tennis court in Hollywood! And the agent will happily throw in John Travolta as your neighbor, all a part of the deal. You can even have barbeques with him. Cool. I did some slow mental maths. 25 crores, in Mumbai, maybe this guy could get a 2 bedroom apartment overlooking a dilapidated garden in Malabar Hills, with running water for 4 hours per day. The costliest houses in Hollywood were in the range of $15-20 Million USD. (Rs 60 Crores) The per-square-feet rates in Hollywood were slightly more than what they are in nondescript Chembur. Hollywood was getting close. Not yet Bollywood though. 

So our brokers have happily taken the wormhole to the next galaxy in prices. And all of this was done through an efficient network of brokers on mobile phones. “Sir rates to double ho gaya!”. We know the whisper-system works. Demand-supply is balderdash?