Wednesday, October 3, 2012

Money can't grow in trees.

Probably this will be the quote of the year. It is a simple fact every one, including ruling parties, opposition parties and financial experts, should agree. If money were growing in trees, we should not have to work to get money. Instead, we should have been growing money trees.

Now this simple fact is associated with reforms by central government. First they allowed FDI in retail. Then cut the subsidy for diesel and LPG. Some of the other reforms followed. All financial experts welcomed these moves, however, the opposition parties cried foul. I am not keeping sides here, just sharing my thoughts. I am neither the financial expert nor politician.

The FDI in retail can affect the small and medium retailers badly. So they say. On the other hand, it can help the consumers thanks to more competition. Also, help farmers due to better distribution networks. But, due to big media hype, even the common man is thinking that FDI in retail will hurt them.However, with my limited reading, I can't find any one furnishing any data to prove any of these claims.

The shop owners in Kerala shut down their shops on 3rd October, 2012 to oppose against FDI in retail. We cannot blame them, who wants more competition in business? We, Keralites are the people who protested against computers, attendance punching in Government offices, and whatever we think come against our comfort level. Our CM confirmed FDI in retail will not be allowed in state. So, I am wondering if it were allowed, the shop keepers might have kept their shops shut down for a week. They are enjoying a monopoly here. I wish there are more multi-brand retailers here to challenge them.

Coming to second point, unlike the above one, increase in fuel price hurts the common man a lot. The most basic principle of financial management is that your expense should be less than your income. The Government forgot this for some time, and our deficit was very big. Finally the government has waken up on a fine morning, and cut the subsidy for fuel. This caused the increase in prices.

The stock market responded to it positively, the Sensex went above 18500. The foreign investors are coming back to India, I read.  Rupee is improving against Dollar. All positive news.

However, I read somewhere that increase in fuel prices will lead to hike in prices of virtually everything. This will lead to high inflation rates. Will not this high inflation rates hurt our economy? As the inflation goes up, RBI will increase the interest rates. That means, I will have to pay more for my car and home loan. Life is going to be miserable.

I have read in some of the newspapers that Pakistan is reducing fuel prices to make their economy stronger. And, we are increasing fuel price for the same reason. Who is right and who is wrong here?

We have seen many of the financial forecasts by experts gone wrong. These politicians may be arguing to get support of the masses. So, we will have to take a wait and see approach.

Happy waiting.

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