Sunday, November 25, 2012

Beyond the obvious

Is allowing FDI in multi-brand Retail good for the country? What is the true impact of raising diesel prices or restricting LPG subsidy on the people? Should telecom spectrum and coal mines be auctioned to the highest bidder, or should they be allocated cheaply so that the price paid by the ultimate consumer (for telephone services and electricity) is kept low? Should rail fares be raised? Should the Central Bank reduce interest rates to stimulate industry and make loans cheaper? Should the government act against airlines who fleece passengers by charging exorbitant fares during peak season? Should the government explicitly promote export oriented industries that earn precious foreign exchange? Should cheap imports from countries like China be banned to protect domestic industry? Is the government right in spending thousands of crores on welfare schemes like MGNREGA? Questions such as these are debated daily, and are of interest not only to politicians and bureaucrats who decide on these, but also to citizens whose lives are affected.

How does one take a stand on all these? How does one decide what is right and what is wrong? How does one assess the impact of these decisions – beyond the immediate fallout that we can see (such as, for example, that one would pay more for diesel if diesel prices are raised)? Do these decisions have implications that are beyond the obvious? How do we know what will work out best for us in the long run?

“Economics in One Lesson” by Henry Hazlitt is a remarkable book by any means. Written in such a simple language that even a layman can understand, Hazlitt unravels the mysteries of economic decisions and their long run effects on the health of the economy and welfare in general. Hazlitt explains how markets work, how people behave, how governments decide and what they do to the very people they seek to assist. Hazlitt gives a framework that enables the reader to analyze the long run impact of such decisions, including that  which is not so obvious but nevertheless very important.

Hazlitt's remarkable book should
be compulsory reading for all
The book is divided into twenty five chapters, each dealing with a distinct topic such as taxation, effects of mechanization, import tariffs, export promotion, government price fixing, inflation, and so on. Hazlitt explains the basic principles underlying these actions and the impact of these on the economic activity as a result. Hazlitt uncovers not only that which is seen, but also that which is not seen. In Hazlitt’s own words, “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely on one group but for all groups”

It is amazing how much ignorance about economic issues is prevalent even among the policymakers today. Take the following paragraph from the chapter on government price fixing, for example. You might want to read it in the context of the current mess in India’s Oil & Gas sector, but keep in mind that Hazlitt’s small book was written in 1946!

Hazlitt writes, and I quote, “We cannot hold the price of any commodity below its market level without in time bringing about two consequences. The first is to increase the demand for that commodity. Because the commodity is cheaper, people are both tempted to buy, and can afford to buy more of it. The second is to reduce supply of that commodity. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. In addition to this, production of that commodity is discouraged. Profit margins are reduced or wiped out. Marginal producers are driven out of business….if we did nothing else, therefore, the consequence of fixing a maximum price of a particular commodity would be to bring about a shortage of that commodity. But this is precisely opposite of what the government regulators originally wanted to do…. Some of these consequences in time become apparent to the regulators, who then adopt various other devices and controls in an attempt to avert them. Among these devices are rationing, cost-control, subsidies and universal price fixing.” Hazlitt then goes on to systematically demolish each of these.

As we all know, relying on the promise of deregulation, billions of dollars were spent on all stages of the oil & gas value chain in India, from exploration to refining to pipelines to storage & distribution. But the country still doesn’t have enough of what it needs. Most of the capacity in the private sector has been shut or is on the verge of closure, the public sector survives on huge doles of support from tax payer’s money. People don't have enough of what they want and the private producers have all but fled, all because of faulty price fixing.

It is remarkable that such a storehouse of knowledge can be crunched in such a small book and explained so lucidly. This book should be compulsory reading for all the lawmakers who decide our future, and for all of us who choose them.

Sunday, November 18, 2012

Me Mumbaikar

On 26th April 1986, The Times of India carried a cartoon depicting a khadi-and-Gandhi-cap clad politician cautiously touching a sleeping tiger. The tiger roars back, taking the neta by surprise. “He’s alive!”, the neta exclaims, while the common man watches on. It was the story of the 1985 BMC (Bombay Municipal Corporation, then) elections, whose results had just been declared and a seemingly dormant Shiv Sena had scored a surprise victory. A picture is worth a thousand words, and so was this R.K.Laxman cartoon.

Though the Shiv Sena had been formed nearly two decades earlier, it had largely remained on the periphery of the State’s politics until then. With this victory in the BMC, the Sena saw a strong resurgence, and Bal Thackeray quickly capitalized on it, swaying the local Marathi youth, hit hard by the influx of migrants and the devastating textile strike by Datta Samant in 1982. The Sena has almost continuously controlled Mumbai since then, and when in 1995, Manohar Joshi was sworn in as the 15th Chief Minister of Maharashtra; Thackeray’s power reached its peak. (The term ‘remote control’ first came into political parlance with this very arrangement)

Among his detractors, Bal Thackeray evoked extreme reactions. His contempt for democracy, anti-Muslim rhetoric or use of strong arm tactics made him a soft target of the pseudo-secular intelligentsia. But there is one thing Bal Thackeray could never be accused of – hypocrisy. Thackeray spoke what his heart said, and it was this very forthrightness that endeared him to his masses.

Thackeray’s success came, not because of, but in spite of, an unfriendly media. It has rarely been reported that the Shiv Sena runs one of the largest ambulance networks in the country. Its Sthaniya Lokadhikar Samiti provided jobs to hundreds of jobless youth in the 1980s and early 90s, literally pre-empting them from joining the underworld during the heydays of Mumbai gang wars. At the peak of the Mandal Commission controversy, when even the supposedly upper caste parties like the Congress and the BJP dithered, Bal Thackeray launched a scathing attack on caste based reservations, risking his political career, but staying true to the principles he believed in.  Long before Vajpayee’s Roads Revolution, the Sena – BJP government built a network of more than 50 flyovers in the city, without which city traffic would have come to a standstill today.

In later years, Thackeray tried to expand his base outside Maharashtra, shedding his pro-Marathi stance and embracing the Hindutva agenda. This earned him a large non-Marathi following within Mumbai, but the Sena could not make any meaningful dent outside Maharashtra.

Today, Thackeray leaves the Sena in a precarious state. As corruption dominates the political discourse, the Shiv Sena finds itself on a sticky wicket. Raj Thackeray’s MNS (Maharashtra Navnirman Sena) has split his Marathi manoos voter base down the middle. How Uddhav takes up these challenges remains to be seen.

While most of Maharashtra’s politicians come from regions such as the Konkan, Vidarbha, Central Maharashtra or the sugar belt, Thackeray was the only leading political figure who had his roots in Mumbai. Till the very end, Thackeray remained in Mumbai, trusting his life to doctors who belonged to the very faith he was accused of targeting.

He loved Mumbai and fought for Mumbai. For this and this alone, Balasaheb Thackeray will be badly missed.

Saturday, November 10, 2012

God's own country!

Back from a refreshing trip of Kerala!

Calm and serene backwaters. Tender coconuts. Mouth-watering banana chips. The tempting aroma of freshly brewed coffee. Houseboats. Spices. Rare species of birds. Kadla curry with Appam or Puttu. Pothole-free roads. Disciplined traffic. Long winding village names, which only the Mallus can spell and pronounce! Freshly fried fish. Karl Marx & Che Guevara posters.  Clean white dhoti. Uttapa called as a Dosa, and Dosa simply as a plain ‘roast’! Served along with a Vada that you think is complimentary (till you get the bill, that is). A lake so large you think it is the seaMundum Neryathum, the unique two-piece sari. "Chinese" fishing nets, that actually use Portuguese technology, not Chinese! Beautiful roadside bungalows. Picturesque inland waterways. Ancient "dembles" (!) mostly dedicated to Shiva, holding some of the world’s largest treasure troves known to man. Thundering rains. A quite & peaceful life. Kerala is unique. Kerala has so much to offer.

And a lot more!

Photogenic tea gardens.  Majestic elephants. Ayurvedic massages. Kathakali. Honest autorickshaw-wallahs!  The list can go on…

Some snippets from my recent visit...

Navigating through the backwaters...

The houseboats and the stunning scenery is without doubt Kerala's biggest tourist attraction

The Mahadevar Temple at Kottayam has some stunning architecture on its walls

The unique "Chinese" fishing nets at Fort Kochi

The Bird sanctuary at Kumarakom offers some beautiful sightings 

A mini-Venice, locals around the Vembanad region move around in boats rather than the road

Wednesday, August 15, 2012

India awaits freedom

History has it that Kamsa was a cruel and unjust ruler of Mathura. Kamsa was greedy and cunning, and imprisoned his father Ugrasena to become the King of Mathura by deceit. Kamsa aspired to rule the world, and his frequent war mongering left the peace loving people of Mathura harassed and exploited. When he learnt that the eighth son of his sister Devaki & Vasudev would kill him, Kamsa imprisoned them both and killed each of their children as soon as it was born.

But the eighth son, Krishna, survived.

It is said that when Krishna was born, the doors of the prison where Devaki & Vasudev were kept opened automatically, and the guards fell into a hypnotic sleep. It was midnight and raining heavily, but a Sheshnag appeared from nowhere and protected Baby Krishna from the heavy rain. The raging Yamuna calmed down almost by magic, and made way for Vasudev to pass to the other side of the overflowing river. For the next few years, as Krishna grew up in Gokula, Kamsa spent all his time searching for Krishna. He lost his appetite and slept poorly at night. He could see his dream of conquering the world fade away. He got obsessed with the thought of killing Krishna, but all his attempts to assassinate Krishna went in vain. The poisonous Putana could cause no harm, and Trinavarta, the ‘whirlwind’ demon was blown away. Arishta, Keshi, Kaliya and many others fell like ninepins before the might and magic of Krishna. Krishna was unstoppable, Krishna was unbeatable. Krishna was the Supreme Being.

Krishna was an idea whose time had come.

Today, five thousand years later, India again awaits an idea whose time has come.

Sunday, July 29, 2012

Why Anand is the greatest sportsman India has seen

This story dates back more than a quarter of a century ago. A 17-year old boy traveled by train from Madras to Sangli, a small town in the heart of the sugar belt of Maharashtra. In the train, the boy immersed himself in books on chess, playing out games of champions of the past on a board spread out in front of him. An elderly co-passenger, amused at the boy’s interest in the game, asked him if they could play a game or two. The boy agreed, and it was soon clear to the gentleman that his age and experience was no match to the boy’s talent at the board. “What is your name? You play quite well!” asked the somewhat shaken gentleman, trying to salvage his bruised pride at having been beaten by a young lad perhaps one-third his age. “My name is Anand”, came the reply, “I am the champion of the country”.

A young Vishwanathan Anand, at that time in 1986, was on his way to the National Junior (Under-19) Chess Championships at Sangli, but he was already a National Champion (seniors) then, having won the National Chess Championship a year earlier at the age of 16. Needless to say, Anand won the Sangli Juniors with ease, went to the World Junior Championship, won that too and in the next few months, became the first Chess Grandmaster of the country.

The rest, as they say, is history. But my intent here is not to profile Anand and his trophies, of which there are many, as enough material is already available on the internet. Nor do I plan to write about the other qualities of this exceptional gentleman, such as his extraordinary memory, amazing speed and spotlessly clean character. Why then do I say that Anand is the greatest sportsman this country has ever produced?

Vishwanathan Anand walks in for his game against Boris Gelfand in the World Chess Championships, Moscow 2012 (Photo Courtesy:

Anand has spawned an industry. Thanks to Anand, the game has acquired the status of a 'sport' and become a household name in the country. Today, hundreds of eight-and-ten year olds can be seen sitting across the board and fighting their wits in inter-school chess tournaments. A plethora of chess commentators, journalists, organizers and coaches are able to make a comfortable living solely out of the game. The game has been introduced in schools in Gujarat and Tamil Nadu, while Punjab Government would be recruiting chess coaches, the newspaper announced last week. The country now boasts of a staggering 26 Grandmasters, 12 Women Grandmasters and an astonishing 76 International Masters of the game. When Anand started playing, India had no Grandmasters, and the number of International Masters was probably in single digits. India now ranks 8th on the FIDE’s (World Chess Federation) ranking of countries, a ranking based not just on Anand's strength but on the average strength of its top 10 players. This is far better than India’s ranking in any other sport that is played in a large number of nations and would make India a serious contender for a medal at any Chess Olympiad. India’s success at chess is not restricted to Anand’s individual talent alone; it has percolated down to the rank and file in the country. Clearly, Anand has elevated the status of the game in the country of its origin, and this, to my mind, is Anand’s biggest contribution to the game.

Before Anand burst on to the national scene, Satyajit Ray’s Shatranj Ke Khiladi, which portrayed chess in none too flattering a fashion, dominated public memory of the game. Like that gentleman in the train, the game would evoke amusement & curiosity at best, and contempt at worst. A chess player would be seen as a wayward maverick, who had lost his way and was unable to do something more meaningful in life.  Anand gave the game a respectability it deserved. Anand created benchmarks that are worthy of emulation.

As I drove home from office, an advertisement announcing an upcoming chess tournament in the city played on the radio. As I listened to the ad, these were the thoughts that rankled in my mind….

Sunday, July 22, 2012

Peaceful Bulgaria gets a jolt

Bulgaria is a lovely little country of around 7 million people tucked away East of Europe. When I visited the country around 5 years ago, one of the things that struck me as remarkable was the complete absence of any security apparatus anywhere in the country. Being used to the intimidating presence of gun totting security guards, metal detectors and frisking at every nook and corner of the country, the absence of a threat perception among Bulgarians was astonishing.

When I checked into my rented apartment on arriving in the country, my agent – an old lady probably in her fifties - helped me to settle down and showed the place around. At one instance, I had some difficulty understanding the strange locking system on the outer door of my apartment, which she was trying to explain. After a few unsuccessful attempts at teaching me how to lock & unlock the door, she politely said that if I found I could not understand the lock, I could leave the door open while going to office - no one would take anything! I looked at her in total disbelief, but over the next few weeks realized she had really meant it.

Outside the President's Residence - the guards have gone home!
My office, at that time, was located right in the front of the President’s Residence, in the heart of the capital city Sofia. The majestic building stood there almost discreetly, watching life go by. There would only be one security guard at the gate who stood on duty for the entire building. He too would leave at 6:00 PM in the evening and after that, there would be no one! The National Assembly, which stood a stone’s throw away, looked similarly commonplace. You could easily walk up the stairs or take photographs, with no one even casting a glance at what you were doing. No rifle wielding commandos, no cars flashing their red beacons, no VIP cavalcades bringing traffic to a halt. It was clear to me that Bulgarians had no enemies, nothing to fear. Having come out of the Iron Curtain, the country had at that time one of the highest growth rates in Europe and was looking forward optimistically to joining the European Union. 

In fact, the only time I saw any security presence in the country was when the then U.S. President George Bush visited Sofia. For his visit, some of the principal roads in the city were cordoned off, traffic was diverted and there were policemen all around. The night before Mr. Bush was due to arrive, as I walked home late from office, a policeman stopped me and asked for my identity. After showing him my papers and answering a few questions, I proceeded home. Clearly, Mr. Bush had enemies, though the Bulgarians didn’t.

Last week, a powerful bomb ripped across the coastal city of Burgas in Eastern Bulgaria, killing 5 Israeli tourists and injuring many others. The tragic attack has shattered the peace and harmony of this beautiful country. If the attack changes this permanently, it would be a sad day indeed.

Saturday, June 23, 2012

Why Socialism fails

Came across this interesting and instructive story recently:

An Economics Professor at a local University made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that socialism worked and with socialism, no one would be poor, and no one would be rich, a great equalizer.

The professor then said, “Ok, we will have an experiment in this class on the socialism principles. All grades will be averaged, and everyone will receive the same grade, no matter how one actually performs in the exam"

After the first test, the grades were averaged, and everyone got a “B”. The students who studied hard were a upset, and the students who studied little were happy. As the second test rolled around, the students who studied little studied even less, and the ones who had studied hard earlier took it easy too. The second test average was a “D”! No one was happy. When the third test rolled around, the average was an “F”.

As the tests proceeded, the scores never increased, as bickering, blame and name calling all resulted in hard feelings and no one would study for the benefit of others. By the end of the year, all failed.

The professor told them that socialism would ultimately fail because when the reward is great, the effort to succeed is great, but when the reward is not yours, no one will try or want to succeed.

Could not be any simpler than that.

Saturday, May 26, 2012

Buddham Sharanam Gachhami !

Long before India started exporting spices or software, Ideas, Thought Leadership and Spirituality were the earliest exports from India to the world. The zero and the decimal system, which forms basis of the numbering system that the world uses today, was invented in India. Kautilya’s Arthashastra, written in the 4th Century BC, laid down the principles of governance, public administration and taxation several centuries before modern-day economics or political science was born. Wonders of modern science, from aircrafts to surgeries have all been mentioned in ancient Indian texts. Ayurveda holds the secrets of good health which modern day researchers are trying to discover and patent. Sushruta’s Sushruta Samhita, written in 800 BC mentions more than 300 surgeries, including the likes of plastic surgery, cataract and caesarian section. The techniques of Yoga and Meditation as key to a healthy body and a healthy mind are seeing resurgence in the West.

Grand Buddha statue at the pagoda
One of the ideas that India gave birth to, and were embraced by the world, were the teachings of Gautam Buddha. From Mongolia in the North to Sri Lanka in the South, and from South East Asia to Japan, Buddhism is today the fourth largest religion in the World. Close to half a million people in the world follow Buddha and his teachings as their principal religious order.

Buddha taught that suffering is an ingrained part of existence, but it is possible to end it by following the right path. The right path, he said is the eight – fold noble path of right view, right intention, right speech, right action, right livelihood, right effort, right mindfulness and right concentration. Buddha said no teachings should be accepted unless they are borne out by our experience and are praised by the wise. Buddha held that two qualities are rare among humans: Katannuta that is, Gratitude and Pubbakarita, which is, initiative to help others without expecting anything in return. These two qualities are the true measure of progress.

A grand Pagoda, styled along traditional Burmese architecture, has come up in Mumbai recently.  The pagoda, built by the Global Vipassana Foundation seeks to spread the true teachings of Buddha and  promotes the practice of Vipassana Meditation that was said to have been practiced by Buddha himself.

The Pagoda claims to contain the largest pillar-less dome structure in the World, 90 feet in height and 280 feet in diameter. Built using 2.5 million tonnes of stone and 3,000 truckloads of sand, the pagoda towers to a height of a 30-storey building. Underneath it is a huge meditation hall which can accommodate 8,000 people at a time. It has been designed as a replica of Shwe Dagon Pagoda of Myanmar. Relics of Gautam Buddha are enshrined at the site. The entire complex, apart from the main pagoda, contains several other structures such as an art gallery, a library, two other smaller pagodas, an auditorium, a food court etc. Exquisite samples of traditional Burmese architecture can be seen throughout the campus. The art gallery contains stunning paintings depicting the life of Gautam Buddha from birth to death. An excellent facility, to listen to the story of each painting as you move along the gallery, using a tape and earphones is available. This makes the visit to the gallery worthwhile and meaningful, as it enhances our understanding of the life of Gautam Buddha and his teachings. The pagoda is located off the coast of Gorai, in Mumbai. Take a look some day.

Tuesday, May 15, 2012

A surprise called Nagaon

I have always been enchanted by beaches. Every beach has something new to offer, something different. I find it difficult to explain what it is – is it the water, the sand, the fresh breeze or the sun? May be the clouds, or the trees around. There is always something new, something different to see and experience. I wonder if there is a “beach therapy” around. Going to a beach is a medicine in itself. Nothing rejuvenates better than a visit to the beach.

So when a friend suggested we go to Nagaon for the weekend, I was only too willing to join. A few glimpses from my visit to Nagaon, which incidentally must also be the cheapest water sports centre near Mumbai.

Set sail from the Gateway

Mandwa is just an hour away
Can we see Vijay Dinanath Chauhan anywhere?

Can you see a Ganesha here?
The journey is a ship watcher's paradise - click here for more

Surprisingly high tides, right on the shore make Nagaon a delight for sports lovers

Enchanting sunset makes the visit unforgettable!

Monday, April 30, 2012

Sachin as a celebrity MP

Sachin Tendulkar’s decision to accept nomination of Rajya Sabha has come in for heavy criticism from the public. Soon after the news was reported, the Twitter world went berserk, and hashtag #UnfollowSachin was trending Worldwide. Opinion polls such as those on The Times of India website indicate three - fourth's of the people disapprove of the development.  Media reactions were more restrained, trying to balance criticism with respect for Sachin the cricketer. Journalists writing in the print media used euphemistic tones, “cautioning” Sachin about the “challenges” that lay ahead. The electronic media did what it does best – organize debates without adding anything of value. Political reactions were of course, the worst, ranging from purely hypocritical to downright ridiculous. The Communist Party of India (CPI), for instance, demanded that Sourav Ganguly should also be nominated to the House, as if they are building a cricket team in Parliament.

But is the pessimism surrounding Sachin’s nomination justified?

Performance data of Members of Parliament (MPs) is now available online. The data assesses performance of all the MPs along parameters such as asking questions, participation in debates, including raising important issues, introduction of Private Member’s Bills and attendance in Parliament. I downloaded the data and looked for how celebrities have done. Data indicates that performance of celebrities in the current Lok Sabha is mixed, and generally ranges from poor to below average.

Performance of celebrities in the current Lok Sabha (till 31st March 2012)
Pvt. Member’s Bills
Jaya Prada
Kirti Azad
Navjyot Sidhu
Shatrughan Sinha
Raj Babbar*
National Average
(*Term started on 10/11/2009, for all others 18/05/2009)

Jaya Prada, for example has recorded only 32 percent attendance in Parliament, though has asked a lot of questions. Kirti Azad has been present in Parliament 92% of the time, but has scored slightly below the national average in participation in debates and asking questions. Sidhu has neither attended Parliament much nor taken part in debates, while Azharuddin and Raj Babbar have been little more than spectators.

Of course, the above metrics may not be perfect. For example, ‘attendance’ only means signing the Attendance Register for the day and does not mean the member was present for the whole day and listened with rapt attention to what was going on. There can also be other parameters on which an MP can be judged, but this is the best data that is currently available.

In another article, The Times of India has also drawn the similar conclusions about nominees to the Rajya Sabha, though it only quotes the attendance record in its support.

Attendance record of some celebrities in Rajya Sabha
Sittings Attended
Total sittings
Lata Mangeshkar
Mrinal Sen
Shabana Azmi
Hema Malini
Dara Singh
(Source: The Times of India)

Personally, there would be nothing wrong if Sachin Tendulkar is entering politics. In fact, Sachin can do a lot of good for the country if he wants to, and only time will tell what he actually does. But his accepting the post even before retiring from active cricket has certainly not gone down well the people. It indicates he treats the post  merely as an ornamental one. The carefully orchestrated Bharat Ratna media campaign may also get punctured, as Sachin accepts a government largesse which is seen as significantly below his demi-God stature. And then, there is this whole issue of legality of his appointment.

This just isn't cricket, Sachin. Very disappointing.

Saturday, April 21, 2012

Returns or Inflation?

Between July 2008 and today, the Indian Rupee has lost 40 % of its value.
Talk about rising prices, and discussion in the media inevitably revolves around the Inflation Rate. The Finance Minister talks about the Inflation Rate, so does the RBI Governor, the experts on TV channels and journos from the print & electronic media – all you get to hear from them is the Inflation Rate. Further, more often than not, they refer to the WPI (Wholesale Price Index), while what matters to the people is the CPI (Consumer Price Index). A meaningful analysis of how rising prices are hitting the venerated (just for namesake!) 'aam aadmi' is therefore, conspicuous by its absence. To understand why I say so, you first need to know what the problem with the Inflation Rate is.
This is what they show you - falling inflation (click to enlarge)
The Inflation Rate shows the difference between price of a commodity (or price index) over a period of one year. It compares the current price of a commodity with its price at the same point of time a  year ago. So if the price of loaf of bread was Rs.20 exactly one year back, and it is Rs. 22 today, we say inflation rate is 10 %. (Rs.2 over Rs.20).
But the inflation rate completely ignores prices more than one year away. If your perspective is long term, as it should be, the current inflation rate will tell you nothing about how prices have risen over a longer period of time. If prices double in a year, and remain where they are for another year, you will get an inflation rate of zero, though over a two year period, prices would have gone up by almost 50 % per annum. Therefore, while inflation rate has its uses, it is also important to look at the actual price index itself, to get a proper perspective on prices. Unfortunately, the media, and their  so-called experts are rarely interested in such finer details.
This is what the truth is - ever rising prices (click to enlarge)
Take a look at the news items, such as this or this or this Rarely will you find a mention of the actual price index. So I thought it would be worthwhile to see what was has happened to prices actually, rather than the inflation rate since July 2008. I used the Consumer Price Index (CPI), and not the Wholesale Price Index (WPI), since that is what matters the most to the people. What I found out was what I told you in the first sentence of this article – the Rupee has lost 40 % of its value in the last three & half years. The CPI (IW) which was at 143 on  31st July, 2008 stood at 199 on 29th February, 2012, almost 40 % higher. What does this mean? In simple terms, what ever Rs.100 could buy in July 2008 costs Rs.140 today. 

Now, if you were to adjust any of the current prices to this, you will get the real picture of price increase / decrease during the period. Adjust Sensex or the Nifty to this, and the indices which apparently have given a return of 24 % during this period actually end up with a loss of 11% ! Even property price rise has been very modest (19 % in 3 & 1/2 years) while Gold has performed the best.

As on
Real Returns

(* Inflation adjusted level) (@ MCX Spot price per 10 gms) (# NHB's Residex for Mumbai) (All Returns are absolute, not annualised)

To assess the price performance of anything over the long term, you need to deflate it with the price level. That is when you will get the real picture.   
Note: In 2011, the Government issued a new series using 2010 as the base. As per the new series, the inflation rate is 9.45% and 10.30% for Urban India in February and March 2012 respectively, even higher than what the above figures indicate. For want of adequate history, I have used the old series of CPI in my calculations above.