Friday, December 4, 2009

NEGATIVE INFLATION - Whom are you fooling dude?

NEGATIVE INFLATION - Are we heading towards a recession?

A few months back, this was the headline in almost every news channel and news paper (assuming the language of the channels and papers constant, ceteris paribus). Common people (or cattle class) were ecstatic as because negative inflation signifies that the general price level is recording a sustained gradual fall over time, which means cheaper goods and increased value of money.

On the other hand, the Industrialists (or sucker class, as I love to call them) were devastated at this sight, as it implies lesser profits, and of course, less sucking. The Economists believe that negative inflation is not at all a healthy signal for an economy. On the contrary, a mild inflation acts as a lubricant in the wheels of an economy. Allow me to explain this point. A mild inflation signifies a very slow, gradual, sustained increase in the general price level. A mild dose of inflation is required as it encourages the producers to produce more, thus boosting production, output and employment. On the other hand, the general income level rises due to this, and consumers have more purchasing power in their hand, which increases the level of Aggregate Demand in the economy.

Oh sorry, I am deviating from the point I started to explain. We already know that the price of general goods are at an all time high. Look at the price of vegetables. At this point of time, potatoes are generally Rs. 4/5 per kg, but now its Rs 30 per kg (plus minus something, since I am not a regular visitor to the veg market). Inspite of this, the inflation is negative - BULLSHIT.

Now the organisation dedicated to release these figures are not dumb asses. This apparently vague comments have deep rooted mathematics embedded inside them. There is something called Price Index (I would love to teach this concept, but for this you need to attend my Statistics classes ... lol) which records changes in prices of the current year as compared to the base year. Now in the Inflation Equation, weights are assigned to basket of commodities, like agricultural commodities, industrial commodities, durable consumer goods, etc.

Now, if you notice, the price of industrial and consumer goods didnt increase proportionately. Its the agricultural output prices that screwd up our life. The Economists in these agencies removed the higher weight from the agricultural output to the other commodities whose prices didnt record any upward thrust. After this, high school mathematics follows. Obviously, the inflation figures reveals a downward drive and eventually surpasses the bottomline. See, the beauty of mathematics - which I keep on telling my students. That is why Mathematics is the most beautiful subject in the world.

Now, the question is "Why did the government do this?"

Well, the answer is - The government is forced to show a lower fiscal deficit to the IMF in order to secure long term loans. Soaring inflation prices doesnt help the case. So, lowering of inflation figures helps lower the fiscal deficit (atleast on paper), and thus loans are secured.

Now the question for the readers to answer is -


Thursday, October 29, 2009

Is it possible to eliminate poverty?

About three-forth of the total population of this planet are victims of poverty. Those who are fortunate and well endowed do not spend time thinking about the problems of the poor. The poor themselves are so preoccupied with the survival that they do not enjoy the luxury of thinking beyond the next meal. The largest proportions of the poor reside in South Asia and the Sub-Saharan region.

Everyone is familiar with the Nobel laureate Mohammad Yunus and the story of the successful model of poverty eradication of Bangladesh’s Grameen Bank. Prof. Yunus asserts that poverty is not a naturally ordained state of human existence. Poverty is unnatural as is human slavery and the colonial domination of countries. It is therefore natural to conclude that poverty need not be everlasting as indeed slavery or colonization were not.
Prof. Yunus believed that every human being is born with equal abilities, but with access to different degrees of opportunities. So he prescribes that if there was a way by which opportunities could be evenly spread out and made available to all, deprivation and poverty might be eradicated.

Prof. Yunus’s anguish and enquiries were triggered by the spectre of widespread deaths owing to starvation of the poor during a famine in Bangladesh. This reinforced the fact that not only do the poor not have access to resources during normal times, but this lack of access becomes fatal during periods of crisis. This further reinforces the fact that credit is only available to the prosperous section, while the poor who desperately need credit has no one to lend them.
The success story of Bangladeshi Grameen Bank is widely known. It started 30 years ago and according to Prof. Yunus, 80% of poor households in Bangladesh today have access to micro credit. Their target is to cover all households by 2010. The impact is reflected by Bangladesh’s superior ranking as compared to it’s South Asian neighbours in terms of social indices like infant mortality, maternal mortality, sanitation, nutritional balance and evil social customs such as dowry and child marriage. Prof. Yunus’s concept of “not - for – profit social corporate bodies” and a stock exchange for such “not - for – profit social companies” is under discussion in places like Harvard Business School and MIT – Sloan School of Business.

I had the priviledge of attending a seminar held in the Department of Economics, University of North Bengal, from 22nd to 24th March, 2007. I was fortunate enough to listen to eminent economists and scholars and I learnt that there are a number of success stories of Self Help Groups (SHGs) and NGOs in alleviating poverty in some isolated places in India. But given the vastness of our problems, the question arises that is it really sufficient. Micro credit has to become the core of India’s banking operations.

One of the greatest events of the 20th century was the innovation of ‘Satyagraha’ by Mahatma Gandhi to rid India of colonial occupation. It is probable that the concept of micro credit for the dispossessed to end poverty could be the biggest innovation of the 21st century.