Also published on http://www.caclubindia.com/articles/indian-economic-turbulence-a-comparative-view-13950.asp
Finance Minister Pranab Mukherjee on Wednesday, 23rd May 2012, assured Parliament that India's growth story remained intact despite Euro zone crisis and Greece turmoil. Mr. Mukherjee attributed the downward trend in the share markets to the global economic crisis.
However we need to introspect and appreciate the “Growth Story” of India in comparison with our neighbours. Let us take the recent hike in petrol prices and the foreign exchange rates as a point of comparison of economic governance of the Country.
Following is the table that benchmarks petrol prices after using respective country’s exchange rate and then comparing with INR for parity:
Country
|
$ per Ltr 2010
|
INR/ ltr @ 45.9
|
$ per Ltr 2011
|
INR/ ltr @ 49.26
|
$ per Ltr 2012
|
INR/ ltr @55
|
% Deviation from India, 2012
|
USA
|
0.64
|
30.00
|
0.96
|
48.40
|
0.96
|
53.00
|
-32%
|
Pakistan
|
0.79
|
36.60
|
0.97
|
45.80
|
1.12
|
61.60
|
-21%
|
India
|
1.22
|
56.00
|
1.48
|
72.90
|
1.42
|
78.00
|
--
|
We can see that over the period from 2010 till 2012, people of India have paid more for every ltr of petrol when compared to Pakistan and US. Isn’t there any issue on balance of payments!!
Again, when it comes to exchange rates, the depreciation of Indian rupee is much high than compared to Pakistan. The exchange rate of Feb 2012 was 90:1 which moved upto 91.5:1 in May 2012, hardly any fluctuation when compared to Indian market which moved from 50 to 56 in the same 90 day period.ie 12%.
When we say that India is a growing economy, does it mean that cost of living of the Country should also increase in an exponential manner!! It is said that we have a strong growth story, which is benchmarked with the GDP rates of India over the period. But can high GDP rates be seen in isolation?
It is been 8 years during which one may say that the sensex has risen from 6,000 to 16,000 but inflation rates have also been on upsurge since then. Is it a real growth? Companies are increasing the prices of goods and services constantly and raising their margins to boost EPS and PE multiples. Even prices of essential commodities such as dairy products, foodgrains etc have all doubled and tripled in many cases.
Period
|
Inflation*
|
Sensex**
|
India GDP rate^
|
Pak GDP rate^
|
March 2012
|
8.649 %
|
15,948
|
-
|
-
|
March 2011
|
8.823 %
|
15,455
|
7.5
|
3.0
|
March 2010
|
14.865 %
|
20,510
|
10.094
|
3.759
|
March 2009
|
8.029 %
|
17,465
|
6.771
|
1.722
|
March 2008
|
7.874 %
|
9,647
|
6.186
|
3.685
|
March 2007
|
6.723 %
|
20,286
|
9.991
|
6.815
|
March 2006
|
4.571 %
|
13,786
|
9.53
|
5.818
|
March 2005
|
4.167 %
|
9,397
|
9.033
|
8.958
|
March 2004
|
3.491 %
|
6,602
|
7.591
|
7.483
|
* http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/india.aspx
**http://www.bseindia.com/histdata/hindices2.asp
^ http://www.tradingeconomics.com
Prices in India have been on rising scale since 2004, especially the realty price index is not seeing a sign of correction. The growth in GDP is not visible to common man who is exposed to such high rates of inflation. Per capital GDP of India was $3500 as compared to $ 46,800 of United States for 2010. The numbers have not improved as understood from the GDP growth rates. The cost of living in metros especially in Mumbai is inching towards that in United States but without matching income. The increase in salaries over last 3 years has been in single digit where as the real consumer prioce inflation has been in double digits.
Its time to introspect in our Governance Policies and come out with the right fix. It is quite possible that the more internationalization and exposure to international commodity markets has impacted us adversely and have contributed to inflation and volatility.
It is however surprising that the cattle in India that feeds on the grass grown in India has also been producing milk whose prices have also not been controlled. Probably these are side effects of inflation linked Governance and Growth.
Pakistan’s GDP rate is just half of India’s GDP and is not a rising trend, still they are in control of Foreign exchange rate and Petrol prices to name a two, then why not India!
Sanjay Chauhan
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