On Jan1, 2010, I got the honor of getting space in Hindustan Times for an article. I thought there can not be a better way to start to this blog. This space will henceforth be used tto dump my creations in finance and economics.
The article below is unedited version of the published article.
“The value of any commodity is equal to the quantity of labour which it enables him to purchase or command.” – Adam Smith, 1776.
We all possess certain amounts of this commodity called money and are eternally worried about what will happen to its value. We fear that rise in prices of consumer commodities like petrol, gold, potato, etc. will leave us poorer though we still have the same amount of money. This fear is on display when we agitate against price hikes.
With the global financial meltdown and a near drought year, the worst is behind us. Through this article author will point out reasons why consumers should look forward to year 2010 with hope.
Imports make 23.8% of the Indian GDP and thus are a very important factor in determining inflation. There are three reasons that strongly point to imports becoming cheaper in 2010. 1) With Purchasing Power Parity (PPP) greater than 1, Indian National Rupee (INR) is expected to strengthen with increase in global trade. 2) INR is undervalued to boost exports; this will change as our major trade partners USA and Europe fights economic crisis. 3) INR has weakened a lot against dollar in the wake of financial crisis as shown in the graph. In 2008, dollar went up to 50 rupees from a low of 40 rupees as FIIs pulled out a net of Rs. 52,900 crores from Indian markets. This trend is reversing with FIIs pouring a record Rs. 80,000 crores on domestic bourses in 2009, rupee will strengthen further in 2010 to its pre 2008 levels.
Last year, India faced one of the worst droughts in its history. With optimistic monsoon prediction, YoY agriculture output is bound to rise substantially fuelling the dream of cheaper agriculture products and food for all in 2010.
There are many other significant factors that will boost power of money. The crash in crude oil prices is likely to show its effect on transportation prices driving them lower and will also have a ripple effect on prices of other commodities. The ambitious Telecom ministry will lower tariffs and calling rates further in 2010. Also innovations of India Inc. like TATA Nano, Mahindra Gio, mini refrigerators, etc. will drive purchasing power further up.
Factory output notched 10.3% growth in October. Thus, Indian economic recovery is undeniable; this will give policy makers room to tighten monetary policy in 2010, curtailing inflation further. Overall, it’s expected that 2010 will be a year of price downfall, widening consumer base and economic recovery.
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