Of price rise, price wars and paradoxes: Financial Express: 31st december 2010

Lady Antebellum, Lady Gaga, Justin Beiber, Jay-Z, Eminem, Rihanna, etc, feature in the top 10 on the billboards. But what about our world of economics and finance, which has had some of the most amazing situations that need to be reminisced?

At number 10 was the crisis that came in just as we were ready to roll-back the stimulus. Lehman was in the past and several experts had already won their battles with their supercilious ‘I told you so’ phrase— Roubini, Rogoff, Reinhart, etc; and several others like Sorkin wrote books that made sound capital. But, then the Greece crisis came unexpectedly, which had us on our back foot, so to say, and while the wise ones warned of Ireland, Spain and Portugal, the Irish crisis was just a whimper and passed by like the idle wind.

At number 9 was the great revaluation of the yuan. No one quite believed it when it was announced just before the G20 meet. The idea was to placate other heads of state so that this subject would not be broached during the meet. And quite surely, the renminbi has remained unflappable—from 6.83 in January 2009 to 6.64 in December 2010, even though reserves have increased by $600 billion. Wonder why Indians got hassled by the rupee appreciation.

At 8 was the ecstasy over dollar inflows that dominated conference space. The concept of the Tobin tax came up and economists debated whether there should be physical controls as in Brazil and Thailand. One almost got a feeling that here was a country with excess dollars that could say its plate was full. Fortunately, RBI’s response was more mature and we are no longer talking of superfluous surpluses. The conference sponsors had won anyway!

At 7 was one of the most robust sub-economies in our country—the scam economy. The numbers involving the 2G auction, Adarsh, Commonwealth games, etc, just kept getting bigger and, at a conservative level, could be sized at least 5% of India’s GDP. Was this a Keynesian way of tackling the recession of FY09 and FY10 in FY11?

The confrontation with the regulator was at number 6. This time we had MCX-SX taking Sebi to court over what it felt was an injustice. This comes one year after the commodity space witnessed NCDEX take the FMC to court for coming in its way of interfering with its transaction charges, which would have affected the business of MCX! The Jalan Committee Report on ownership patterns of stock exchanges created a furor as it commented on the listing options for such entities as well. Surely, we will hear more of this in 2011.

At 5 was the stock market. The Sensex yo-yoed but no one got carried away with the 20,000 number. The past has taught us to be sanguine but not ecstatic and for a change the players did not overstate the case of India shining. The experts were cautious of suggesting an upside but never ruled out the downside of the slippage to 17-18,000. The market is surely mature today.

The paradox presented by interest rates was at 4. RBI kept increasing rates to combat inflation. Everyone applauded these moves as inflation came down, though prices remained high. Growth has been very buoyant with investment continuing to take place, thus questioning the thought that high interest rates dampen investment.

In third position is the fall from grace of MFIs. Once acclaimed to be a panacea for inclusiveness, the SKS IPO became a manifestation of its success. Then suddenly someone pointed out that the rates charged and techniques used were not good enough. Down came the shibboleth and now MFIs seem to have become apologetic about their own existence. In India, we always want free lunches, notwithstanding the so-called liberalisation that we talk of. At times politics scores over economics.

Close on the heels of MFIs came the airlines prices. Private airlines are making losses but an increase in fares by them has been interpreted as being anti-competitive. So we have another clampdown on free enterprise where prices have been lowered. This certainly takes the second position in our economic scenes for the year. Should the five star hotels now also watch out for some controls on their pricing?

The top most position is of course inflation. The high base year effect and change in base year, was meant to make the numbers look better. But the better numbers looked bitter, even while the bitter taste of sugar in 2009 was replaced with tears in our eyes as onions hit the Rs 80 mark in the retail market. Hence despite all the 8.8% growth numbers that we are being told about, the high price level does, as Bono of U2 would say—leave a bad taste in the mouth.