My compliments to Dr. Ekambar Kodali for the article written in such simple language that even a non-finance man can understand it.
Regards
Virendra Goel
From: join_mtc@googlegroups.com [mailto:join_mtc@googlegroups.com] On Behalf Of Prof. Bholanath Dutta
Sent: Thursday, August 30, 2012 4:06 AM
To: join_mtc@googlegroups.com
Subject: [MTC Global] Why so large inflation in Indian Economy? By Ekambar Kodali
Please find below an article by Ekambar Kodali, MTCian. Regards @ Bholanath
Why so large inflation in Indian Economy?
By Ekambar Kodali
Prices are soaring rapidly. Why? Prices rise could /would be projected as Growth of the nation as it has always been earlier. When a product price is raised, automatically both revenues of that manufacturer and profits on that product would be more than earlier. This raise in REVENUES and PROFIT would be key driving factor in Stock market and favorite point for Stock market analysts. However this is completely ABSURD and utter failure in terms of ECONOMY.
Common man considers "growth in prosperity" when income rises in terms of Rupees. On the contrary, when able to purchase more Products for the same Income then would not be considered as "Growth in Prosperity". Important point here is "what is income", More Money or More Products! Unfortunately, Govt. of India that is supposed to create policies to fetch more resources for Less Money is not doing so due to which prices have been rising always.
Currency based Economic systems are illusionary in Nature that always have scope for different conclusions, however TRUTH always prevails but identifying TRUTH is challenging. As per the key indicators of the Economy published by Govt. of India, India has US$ 300 Billion reserves {SURPLUS amount after expenses}. When India imports (expenditure to Global Market) stands at US$ 380 billion goods and exports (income from Global Market) at US$ 280 billion worth of goods with a trade deficit of around US$ 100 billion, how is it possible to have reserves with RBI? Next is the CRR amount with RBI that is approximately Rs. 350, 000 Crores of money. Cash Reserve Ratio (CRR) means banks should keep CRR% of money collected from public with RBI as a safety measure. How on the earth so much money is accumulated in banks?
Economic situation in India is "Technically Right Functionally Faulted". India and Indian is going down faster than earlier into the quick sand of expenditure created by certain Govt. Policies those are not visible to common eye and at the reach of Parliament.
When Indian ECONOMY is analyzed at scaled down level, assume India as a room with 10 persons with each has a Rs. 1. each one of them depends on each other some or other way for their needs and uses the money to transact with each other. The total transactions amounted between them in a year is GDP. This GDP would increase either by raise in product consumption or by raise in Prices of the existing products with the same consumption. The natural phenomenon in any economy is the interdependency on each other in the economy regulates the abrupt price raise. But when EXCESS money is made available then price raise would be abrupt. Whoever receives MORE QUANTITY money would spend more which triggers the PRICE rise. Assume that we have allowed a person "X" from outside with Rs. 10 into the room. X will spend liberally than the 10 members in the room. Whoever receives the money from "X" would also be liberal in spending which triggers the price rise. The "X" could be of two ways, a new entrant {FDI/FII} or any members of existing 10 members who may have got money from FOREIGN sources as NRIs. Every one of us may have the experience of watching the way how NRIs behave when they come to India.
The ideal system should be as, every inflow of forex must PURCHASE Rupee to enter India. RBI is allowing other currencies trade against Rupee but not Rupee against other currencies. How could this be figured out? Rupee doesn't get appreciate for forex inflows but depreciates when Forex is required for Indian Companies. The key indicators Forex Reserves and large CRR reflects the crime of RBI. Curtailing liquidity is RBI prime responsibility but it is not doing so.
This weakness has been creating huge liquidity for each forex inflow by export units/NRIs/World Bank loans/FII/FDI/ADR/GDR/ECB/FCCB etc.
Rupee has been intentionally devalued by the nation's renowned economists like Manmohan Singh, for 3 decades together under the name of Competitiveness in global market, is the largest crime than any crime on the earth of India. Rupee is not being intentionally appreciated by the same for the betterment of Indian Economy. When Rupee appreciates, input costs lower inside any economy.
As per the "10 members in a room formula", whoever receives this large quantity of money first, may be Govt. contracting companies, politicians, govt. employees, NRIs, Export oriented units, are impacting the price rise in side the nation.
The key chairs of Indian Govt. of India, PM and FM and other economists in Govt. of India, since last 40 years, are also working to raise the liquidity further to save themselves by covering their blunders in the way how I have explained above about "Growth In Properity". Approximately Rs 2000 crores and above NEW money per week is being added to this nation's economy. It is amounting to approx. Rs. 1 lak Crores of PHYSICAL money which is equal to 10% of Indian Govt. Annual budget.
The budget of Pranab Mukherjee, year 2011 -12 was budgeted at Rs 11 lak crores and 2012-2013 is Rs 14.5 lak crores which is almost 30% raise. This budget figure can be met by only price rise. Price rise reflects as rise in taxes and revenues for Govt. This injection of money and Intentional devaluation did two things to this nation. Indian affordability irrecoverably damaged due to raise in input costs in all fronts. Indian resources are not affordable to Indians and Indian Govt. itself. Resource prices rise in Rupee terms but falls in US$. The loss of this affordability is clearly visible in terms of CURRENT
ACCOUNT DEFICIT.
This loss of affordability has been killing the natural SKILLS of Indians. In the present Knowledge Economies, though No. of Graduates, Post graduates and Research scholars are rising in India, India is not able to become knowledge economy but able to be as LABOR SOURCERER for the world.
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