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Pay till you weep

In 2008, weeks before the economic meltdown hit home like an iceberg, a friend went on a holiday to London. The air tickets cost him Rs 36,000, the taxi ride to the international airport from his home (in Worli) a mere Rs 170. Every Rs 70 got him a British Sterling Pound in return and before leaving for the UK, when he celebrated with his pals at home, 10 bottles of beer cost him just over Rs 500.

He recalls rushing off to the market on his return, as the fridge was empty, and returning with basic veggies — potatoes for Rs 6 a kilo, onions for Rs 4 and a bottle of Saffola Gold oil (what a memory) for Rs 75. A year later he moved into his own apartment at Wadala, a 2 BHK for which he dished out a the then exorbitant rate — Rs 65 lakh. His bankers were kind people and gave him a loan at 8 per cent interest.

Cut to 2013: In five years, our friend’s (let’s keep his name out of the papers this once) salary has gone up by 10 per cent every year (from Rs 1 lakh to just above 1.6 lakh). Yet, he cribs he is by no means a richer man. Indeed, as a little mathematical calculation shows us, he is poorer instead by several thousand rupees. His real income is lower, his savings
are down.

How and why
Go try buying any of the things we mentioned above today. Potatoes at your local market cost Rs 20 a kilo and so do onions. The ride to the international airport on a Meru cab (from Worli) would cost between Rs 300 and Rs 350. A bottle of 750 ml beer costs Rs 100 if not more. The British Pound has all but touched the Rs 100 mark, as you would find if you were to visit Thomas Cook’s foreign exchange window today. And a return fare from Mumbai to Heathrow begins at Rs 60,000 (Rs 60,632 to be precise) on British Airways. And yes, and that same brand of cooking oil today costs Rs 120.

And if our man were to try and buy his own apartment at Wadala today, quite simply, he couldn’t afford it. A flat of the same size right next to his, sold last week for just under Rs 2 crore. Sadly his bank too is feeling the pinch and has hiked his home loan interest rate to 11 per cent, which means he dishes out Rs 10,000 more than before each month as EMI. So much for his royal pay hike!

Welcome to the real world. While your salary may have (on an average) gone up by 60 per cent compared to your 2008 pay cheque, cost of living has jumped by as much as 100 to 200 per cent in some cases. Or even more (like the humble potato, that now commands dollar rates). With the 2013 Union Budget just round the corner, Sunday MiD DAY went around town checking price tags and speaking to economists, travel agents, bankers and of course readers, to find out how life (and the size of our savings) has changed in the last five years and if there is light at the end of the tunnel.

Something’s rotten
Madan Sabnavis, Chief Economist, Care Ratings gets deadly serious when he says, “The government’s monetary policy should concentrate on tackling core inflation.” As oil and food prices hop, skip and jump the world over, it is but obvious that prices of most commodities in India will also increase. Why? Tell us about one item that is not transported from one place to another on a truck, a bus, a ship, a train or an aircraft. Ah! So now you see it?

So while flying to London or taking a Star Cruise does not come under basic necessities, rice, lentils and veggies surely do. And that’s where the rise in fuel costs really hurts. The problem is further compounded by that bi-annual problem — crop failure. As Sabnavis says, “Specific crop failures lead to an increase in the price of that crop.  For example, when the onion crop production was hit earlier this year, the prices went up. Similarly the prices of Toor dal and Urad dal have considerably gone up in recent times. A Reserve Bank of India study shows people are spending much more on their basic necessities than the did three years ago.”

Just to crosscheck, we went back to our carefully kept family diaries to check how much it costs us to buy pulses, veggies, meat and fish in January 2013. The cost for veggies alone (bought once a week) came to Rs 800 a month. A further 10 kilo of boiled rice was tagged at Rs 400, while fish (3 kg @ Rs 180 a kilo) and chicken (2 kg @ Rs 140 a kilo), bought just once a month amounted to just over Rs 800.

Lentils cost a further Rs 300. A whopping Rs 2,300 a month, not counting other essentials such as cooking oil, salt, spices or sugar! Then one of us dug out a dusty old diary dated to 2008. It read like Grimm’s Fairy Tales! The same fish cost Rs 70 a kilo (damn!), chicken was priced at below Rs 100 and the average veggies’ cost was less than half of 2013 rates. Almost made us wish we could go back to 2008 even with our old lower salaries. It was easier on our pockets!

Shashi Panikar, Professor of Economics at Mumbai University and President, The Economics Club, offers an explanation. “Under the Food Security Act, the government is buying most of food grains produced by farmers (approximately 82.4 million tonnes). This has resulted in hoarding, which reduces availability in the free market. This is one of the major reasons for the hike in price of food grains,” he says.  Panikar adds, “In our country, government policies are not being properly implemented. Farmers are not being benefitted by these policies. The government is not encouraging the farmers to grow more food grains and vegetables. There is no control on government expenditure which has resulted in most funds raised not being invested.” So what’s to be done?

Fuelling trouble
It’s not just the food mind you. Monthly fuel bills for car owners have seen a 100 per cent jump in five years, as the cost of petrol has jumped from Rs 43 to Rs 75 in the last five years. This correspondent’s petrol bill for instance has crossed Rs 8000 a month, up from just under Rs 4000 in 2008.

But spare a thought for those less fortunate too. With the constant increase in fuel prices, travelling by public transport has become almost as expensive as travelling by a cab would be in 2008. Consider this: The fare from Chembur to Parel (a mere 11 km) on the AC buses costs Rs 45 today. In 2008, the taxi ride for the same distance would cost Rs 75 to Rs 80 (today it costs Rs 130).

While BEST has increased rates owing to price hike of diesel, the costlier rail tickets can be attributed to the diesel price hike and the recent decision of the Railways Ministry to do away with some populist policies of the past.

Though the central government claims the Wholesale Price Index (WPI) has come down, its benefits are yet to be seen at the ground level. While few experts opine that poor government policies and misuse of funds is the cause of the inflation, others say lack of investment and growth in the industrial sector is a major cause for inflation. One truth that all experts agree on, however, is that the standard of living of the middle class has radically fallen.

Empty piggy banks?
A big indicator of actual standard of living is how much a person is able to save from his income. According to recent RBI findings, financial savings of the average middle class, urban Indian has gone down. Instead of saving money in banks, people are moving towards investing in gold, as they hold on to the one item (apart from real estate) that seems to be beating all growth expectations. But while the price of gold has touched Rs 30,000 for 10 grams (in December 2001 it was Rs 4,300 for 10 grams and in December 2008 Rs 13,450), bank savings have dipped alarmingly, as a result.

Experts claim that the current rate of increase in prices of essential commodities will continue unless the government implements stricter price control measures. “They should also ensure that price hikes should be gradual and in stages instead of suddenly increasing prices after a long interval. Most important of all, the government should reduce wastage of any kind of produce as it happens today in years when we have surplus production of an item,” says a senior IAS officer associated with the central cadre, on condition of anonymity.

A new poverty line?
Nitin Mistry, who works with a private firm in Mumbai, says one solution could be to radically change the poverty line. “With the current rate of inflation, soon families with a monthly income of Rs 15,000 will fall below the poverty line. The value of Rs 1,000 today is equal to the value of Rs 300 a couple of years ago. I can barely support my family with my income, forget saving,” says the 28-year-old.

Agrees Antara Thakur who, thanks to her MBA, has a higher pay package. “Though my family is not entirely dependent on me, I can see the effect of the absurd price hike of products we need for daily use. Travelling expenses are no less. I used to travel by taxi to my office but now I prefer to take a bus,” she says.

And at the bottom of the pyramid, it doesn’t just pinch… it stabs. Lalaram Singh, a grocery store owner in south Mumbai, says, “Everything ranging from dairy products to food grains and fast food products has become expensive. For example a packet of bread that now costs Rs 28 was Rs 13 in 2010. Similarly the price of pulses has also shot up.”

Dissolve the box
While the obvious way out of such a situation is Utopian: control prices, hike salaries to match inflation rates and encourage savings by offering great incentives at banks — such steps would only evoke stifled laughter from bankers, bureaucrats and Indian Inc at large. Yet there are things that can be done. Perhaps the trick will be to not just think out of the box, but dissolve the box entirely. For the upwardly mobile Mumbaiite, for instance, the government could look at increase the cap on tax rebate on home loan interest. In the last five years, real estate prices have shot through the roof and so have bank interest rates. But the government cap of Rs 1,50,000 tax rebates on the loan interest amount remains unchanged.

At present, home buyers with loans of up to Rs 15 lakh get full benefit of the tax break. Beyond this amount, no incremental tax deductions are available. In 2001 when this limit was last raised, it was possible to buy a 1BHK in Mumbai at Rs 15 lakhs. Today the same house costs at least Rs 75 lakh. As Keki Mistry, vice chairman and CEO of HDFC, says, “The government could look at exempting interest on home loans up to Rs 25 lakh in metros and Rs 15 lakh only in smaller towns.”

What about others like bus commuters? While monthly passes are available for both trains and buses, why not encourage local medicine stores and general stores to sell such passes and also combine bus and train passes together, so that citizens can travel in a seamless manner like in most Asian and European cities. Not only will this help the government save on printing costs and man hours, it will benefit the common man too. The ideas are many. But the proponents say neither political leaders nor governments of the day are willing to listen. Will Mr Chidambaram lend us an ear finally? 

We are used to falling real income...
A new research by the Reserve Bank of India shows that the average value of a currency note rose nearly eight-fold in the past two decades, but that there has been an 18-fold rise in the price level in comparison over the same period, reinforcing the real value erosion of the Rupee. “The real value of currency, which shows the purchasing power of a banknote, fell since 2008-09 due to persistently high inflation. Inflation exceeded the growth in the average value of currency in recent times,” the study notes.

...while it makes headlines in UK
Compare this with UK. Real income in Britain fell by 0.8 per cent for the first time in 30 years in 2011, dealing a blow to the prospect of an economic recovery. First time in 30 years?! Indians have been facing this for the last several years now.

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