Monday, October 01, 2007

how come there is money in india?

several answers.

1. india has always generated enormous amounts of capital (throughout history -- this is why the barbarians came). my belief is that it is agriculture that's contributing to this huge generation of capital. this is also the reason why india is doing so well at GDP growth with far less FDI than china.

2. much of this money has been circulating underground. now a bit of it has started coming above ground. note that the offiicial estimates of india's GDP are gross underestimates. let's take the numbers usually bandied about:

$1 trillion economy
800 million live on rs. 20 a day

ok $1 trillion GDP/1.2 billion indians = $833 per head GDP = rs. 33,333 per head per year
= rs. 91 per head per day

now if you assume the 800 million on rs. 20 day is correct, then the rest of indians, ie. 400 million, must be surviving on not much more per day.

if average earnings are rs. 91/day, then if you do a little algebra,

91 = (800*20 + 400 X)/1200

X = rs. 233/day

ie. the huge middle class of india survives on rs. 233, ie. $6 a day (= rs. 6990 per month.)

this is hard to believe. i would imagine that most middle class people, and city folks, spend more than that amount per day. how many middle class people are living on rs. 7000/month?

so where is the error? it is in the gross numbers. india's GDP is much higher than $1 trillion, probably of the order of $2-3 trillion.

much of that has been invisible.

3. the huge bubble in real estate. with land prices having appreciated 10x in the last five years, suddenly people are feeling rich, and are spending accordingly.

4. there are gigantic amounts of havala money and counterfeit currency circulating, thanks mostly to our mohammedan friends to the west and northwest. the banking regulator estimates that there's something like rs. 100,000 crores laundered money going around, and that is a lot of money, $25 billion

so there's a lot of money floating around.

On 10/1/07, R
There is this question that puzzles my economics-naive
mind.  I have posed it to an economist who has promised
to get back to me soon.  The question may be framed
as follows:

What is driving the Indian economy right now and
creating a lot of well-off or wealthy people?  Tata,
Mallya et al are on a buying spree, acquiring companies
abroad outright or buying significant stakes in them.
My question is in light of the following: India has no
technological strength or superiority of any kind.
India has no oil reserves.  Indians are not particularly
innovative.  Indians are not very productive or efficient.
I see no set of niche product or services that Indians
outdo the world in.  Our commitment to excellence
is zero, to mediocrity high.  So what is it that has
us riding the crest of this economic wave? (and the
corollary to that, what might send us down crashing?)


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