AboutDr.VSR.Subramaniam Expertise Basically a B.Sc (Physics) from the University of Madras, India. Started the career in production engineering under German and Italian experts. MBA in Management from IIM, Ahmedabad (India). Ph.D (Management) from the University of Bomaby (the first ever awarded in this subject). Headed the computer centres of Multi nationals; "Data Processing expert" of the Commonwealth, London (To implement World Bank and UNDP Computer softwares); "Consultant Adviser" to the Caribbean Development Bank (CDB), Barbados. Associated with Nobel Laureate in Economic Science-1979, Arthur Lewis (Past President of CDB) & 4 more on his introduction. Visiting professor to many universities. A Trained ISO 9001:2000 Quality Auditor. Over 40 years of combined experience in Accounts, Computer Software, Economics, Engineering, Management, Science, Technology, Research & Development and Qulaity systems. Author of over 60 Application Research papers. Currently a free-lance consultant in ISO Quality Systems, Socio-Economic development acceleration, Innovative software designs. Can answer any question in Theoritical/Applied-economics with an in-depth and innovative dimension. I DO NOT ANSWER : 1. STATISTICAL data & analysis. 2. PRIVATE questions, as they do not appear for PUBLIC view & search 3. Examination & Project report oriented questions. Website http://www.drvsrs.com
Experience Experience in the area Over 40 years in Industrial, Service and Economic development sectors. Socio-economic development oriented expertise (1982-86). With Commonwealth Fund for Technical Cooperation, London as a "Data Processing Expert". With Caribbean Development Bank, Barbados (UNDP,World bank set up) as a "Cnsultant Adviser". See "http://www.drvsrs.com/drvsrs.htm" and "http://www.drvsrs.com/publication.htm". National & International awards. R & D Author at http://ideas.repec.org/e/psu50.html and http://www.ssrn.com/author=360079
Question Looking at the 5 years trend of inflation rate in in india what do you predict or analyse for coming year show do you look at the problem of inflation and what can be done about it?"
Even if you can't offer a complete answer, help us get things started.
Answer PREFACE
I saw your question pending from 15 April 2008 in the “Question Pool” of All Experts. I opted to answer it, because you have asked an interesting, timely and much needed clarification question of importance to all developed, developing and under developed nations. Inflation is common even in developed nations like USA, UK etc… But the foundation and infrastructure for inflation is the same all over the world !!
01) INFLATION
Inflation is directly identified by 3 main factors. They are the increasing trend in the level of prices,. Demand for goods greater than the supply and growth of money supply within the nations.
In India inflation has a hard hitting impact, through all the 3 factors. It is because of the unique features in the domestic population, environmental factors, the social infrastructures and foreign money flow without any domestic return.
02) INFLATION & INDIA
The top bracket in Indian population are from rural workers and urban wage earners. Even after 61 years of independence (a retired independent countrt !!) price increase is enormous in the “prime needs”, namely food, clothing and shelter. In India, prices are rising more than twice as fast as in China, In 2007 the wholesale price inflation has accelerated to 6 percent from 4 percent 2006. Consumer price indexes have risen nearly 7 percent in urban areas and almost 9 percent in rural areas, from 2006.
A) Population growth rate in India is far ahead of the growth rate of the domestic basic need supplies. As an after effect, the domestic supply of the essential needs can never meet the demand created by the increasing population. Even though “population” is considered as a human asset, the rate of growth of illiterate Indian population is more due to the high cost of professional (commercial / technical) education. The illiterate Indian population concentrates in un-productive talent development (like acting, dancing, singing etc..) which can fetch more money than working in farms or industries. Even majority of the educated population migrate out of India, because of the non-attractive job facilities within the nation. These induct more demand and consumption for essential items, without equal efforts to increase the domestic supply. The result is inflation.
B) The environmental factor accelerating the inflation are the trend in converting cultivable lands into industrial infrastructures. The necessary agro-infrastructures are not cared for. Irrigation storage facilities are not maintained, as well as the catchment areas are converted into living, industrial or entertainment facilities. This reduces the supply of food and clothing materials and distracts the agro-labour to become industrial workers. These induct more demand and consumption for essential items as well as destroy the infrastructure for domestic supply. The result is inflation.
C) The Indian societies still live in isolation. Lands, facilities and communities are divided and disintegrated. There are no joint venture or co-operative efforts or the feeling of oneness among the Indian population. (The elected people in the government still encourage this trend by classifying people further into cast, sex, urban, rural, backward, forward etc.. community tags. Priority in basic need supplies and jobs are reserved and allocated on these divisional brackets. This is an open “apartheid”, which is eradicated all over the world). There is no joint and mass production effort among the people. This results in cost inflation leading to increase in price and ends in inflation.
D) Increased money supply is through the attraction of the foreign investor with many incentives and tax free benefits. If the foreign investment is from private sources like Microsoft, Ford motors, GM etc… then they are at a very vantage point. They invest their currency at a favourable exchange rate (Ex : 1 Million US$ investment in USA = 1 M / 46.12 Indian Rupees = 21,682.57 US$ in India). They use the local labour and know-how at a considerably lower cost than what they should have to pay in their developed nations (Ex : An experienced Programmer is paid at least 96,000 US$ per year in USA. In India they can pay IRs 216,000 per year = 4,683.44 US$ or only about 5%). They take away the end product or the sales proceeds at optimum values to their nations. The developing or under-developed nations only contribute their labour and infrastructure to benefit the developed national investor. The money brought and spent in India by them drastically increases the money flow, without any domestic return
LESSON#1 : Foreign money brought into India and the return goes back abroad. The throughput money into the host nation as salaries, wages and over heads has seeded the inflation.
Another source for increased money supply is foreign aided loans from IMF, World Bank etc… These are used by the government in an uneconomical way for infrastructure and pumped into ill-managed industries. All government sectors as well their employees are not cost-conscious. Money is spent in materials, wages and processing costs, without any rate of return leads to direct inflation. The loss as well as the mandatory repayment / other hidden catches in the loan, leads the country into a debtor’s ditch. This in turn leads the nation into an indirect inflation.
LESSON#2 : Foreign money brought into India and under/un-utilised is a two edged tool for inflation. The throughput money into the host nation as salaries, wages and over heads has seeded the inflation as well as the binding to pay back the loan drains the domestic funds towards the payment of debts, an indirect inflation.
03) DEFLATION TOOLS
A) Mass and economic production trend should be inducted among agriculturists. If people in 2008 can come out of their bracketed shells (legal apartheid promoted by the government), get motivated and bring back the values of togetherness into life and practice, it will open the path for prosperity and drastically reduce the inflation.. Now, the individual farming with small pieces of land is uneconomical. People should join together, pool their lands and do mass farming.
Example : If 4 persons say A to D are having 1 acre, 2 acres, 3 acres and 4 acres, respectively, in a nearby location, then they can pool it to a single farm of 10 acres. Plan the correct cash crop and timing to get a favourable return. Do a mass farming, with hired labour, machines plus the personal work contribution of the pooled land owners. Every land owner and the workers should feel comfortable, co-operative and work with pride to achieve a mission of agricultural greatness. I am sure, the rural banks and the government will also help with advances and loans at favourable terms.
Assuming a cost of 10,000, because of mass production, the yield should fetch a market price of 25,000, leaving a net profit of 15,000. This could be shared in proportion of the land contribution as 1,500 for A, 3,000 for B 4,500 for C and 6,000 for D (Total = 15,000).
If the land pooling is in units of 1,000 acres, the cost will reduce considerably. The supply will be qualitatively and quantitatively superior with a sizeable surplus for the people in the pool. This will drastically reduce the inflation trend.
The cost of infrastructure maintenance like irrigation facilities, animal / human welfare, medical, fertilisers, insecticides etc.. should be paid fully or subsidised by the government, for each co-operative farming unit.
B) MY MATHEMATICAL MODELS.
a) I have Geometrically established the following guidelines for accelerated development, related to the area of investment and implementation.
1. Domestic investments should be through domestic savings (individual / corporate / government, even though foreign to start with). [Exogenous circle. It implies that the government should provide enough incentive to motivate the savings at individual and corporate level]
2. Domestic human potential should man the domestic technology (latest technology moderated to suit local environments) [Endogenous circle].
3. Synchronise Exogenous and Endogenous circles & optimise their dimensions.
4. This is universally applicable to all developed, developing, and under-developed nations.
b) I have also Algebraically established the following guidelines for accelerated development, related to the area of productivity measurement and Management decisions. (SED = Socio-economic Development units)
1. Productivity = Sed goals/input > 1 & SED goals/output > 1 subject to output/input > 1
2. Social rate of return is important than Quantum rate of return.
3. Intangible elements are important than tangible elements. (Psycho-Socio-Inter national-Universal)
4. Management decisions are optimum when
SED goals/Input decisions > 1 & SED goals/output decisions > 1,
subject to Output decisions/Input decisions > 1
5. This is universally applicable to all developed, developing, and under-developed nations.
India is a nation with abundant administrative and population infrastructure to seed and promote inflation. These should be immediately analysed and drastically eradicated . The deflation tools are –
A) Mass agriculture and well managed government sector projects and industries.
B) Progressive synchronisation of domestic investments through domestic savings & Latest technology moderated to suit domestic conditions manned by domestic manpower.
C) Measure the output and input management decision and quantity productivity in all sectors with reference to Socio-economic development units as the base, keeping the quantum unit ratios as secondary requirement.
D) Give priority to intangible components (Psychological, Social, national and universal factors) in all input and out put management decisions.
